ESG isn’t dead, it’s just gone mainstream. That’s one of the key observations from a new semi-annual survey of Canadian institutional investors, which points to a focus that goes beyond data gathering and on to impact.
This is being driven, in part, by an uptick in the number of companies conducting double-materiality assessments and indications from the Ministry of Environment and Climate Change Canada that the country will have a transition taxonomy by December 31, 2024.
That’s according to the latest ESG sentiment study from Millani, gathering together responses from 37 asset owners and managers, representing approximately C$5.4 tn ($3.8 tn) of assets under management.
An evolution, not a death
Researchers looking to answer the much-debated question of whether or not there’s still life in ESG put the question direct to investors – and the response is a resounding yes. More than four fifths (81 percent) say ESG is not dead, while 16 percent say it is evolving.
Almost all (94 percent) add that polarization of the term in the US has failed to impact their investment strategy.
‘The general sentiment is that the investment industry has matured, as it has developed better regulations, definitions and tools, and that there has been significant progress toward sophistication in ESG practices today,’ write the Millani researchers.
The report also highlights some comments from the firm’s investor survey: one asset owner who uses a multitude of asset managers notes that ‘[ESG] is now part of the mainstream. The problem is, there has not been a lot of definition of what ESG is…. [Today,] if you are not looking at ESG risks, you are not looking at the entire equation of your investments.’
While one investor comments on recent debate around the term as being par for the course – ‘this is a normal rite of passage for any theory of change; it needs pushback and to be pressure tested to make itself more applicable’ – another pushes the idea that it is more about how ESG is viewed: ‘I think that in the US they think [ESG] is exclusions. It’s not exclusions, it’s the integration of ESG factors, and new regulation is going to clean things up.’
The E and the S
Quentin Weber is director of IR at WSP Global, a Quebec-headquartered professional services firm that works across some of the industries seeking to radically cut emissions and transition to a greener economy, including transport, housebuilding, infrastructure and energy. He says the ESG topics that come up for discussion typically vary depending on the investor he’s meeting with – and where that investor is located.
‘Generally, ESG is covered through engagements with EU-based investors,’ he says, adding that adoption of the EU’s CSRD has been ‘very topical recently’. Although Weber lists diversity and inclusion (D&I) and carbon emissions targets as other top themes alongside CSRD, he stresses that there can be big differences across what investors want to discuss in any one meeting.
‘We could spend extensive time going through our D&I policies with one firm and then do a deep dive on Scope 3 emissions with another investor,’ he points out. ‘The level of ESG sophistication is different throughout the capital markets, which influences the discussions.’
This focus on D&I alongside environmental themes matches what Millani’s research finds: although environmental issues remain top among the investors surveyed (54 percent), the social pillar is of notably greater interest (29 percent) than governance (17 percent).
So what does Weber think WSP investors would like to see more of on the ESG front? ‘More and more transparency and disclosure,’ he states, as well as the ‘capacity to provide visibility on the concept of impact investing.’
