Fewer Canadian institutions consider ESG and DEI when selecting asset managers as investment priorities shift
A study by Crisil Coalition Greenwich found that half of Canadian institutional investors plan to significantly reduce their holdings in passive domestic equities, while a third expect major cuts in passive domestic stocks.
Additionally, a quarter plan to significantly decrease active Canadian equity allocations over the next three years.
At the same time, institutions are increasing investments in private assets.
Nearly two-thirds expect to significantly expand private debt allocations, with no institutions planning major reductions. Almost half plan to make sizable increases in private infrastructure equity, while only 6 percent intend to cut exposure.
Private equity allocations are also shifting, with about half of the institutions planning large increases, though 38 percent expect major reductions.
Mark Buckley, global head of Investment Management at Crisil Coalition Greenwich, emphasized the scale of this shift.
“It’s rare to see so many institutions moving in the same direction at the same time,” he said.
He noted that if institutions follow through on these plans, it could fundamentally reshape institutional investment portfolios in Canada and benefit asset managers offering private strategies.
Corporate defined benefit plans in Canada are redirecting funds from equities into LDI strategies to manage pension funding risks.
Across all institutions, 40 percent plan to significantly increase their LDI allocations, a strategy primarily used by corporate DB plans.
Buckley noted the role of higher interest rates in this shift.
“Canadian companies are taking advantage of higher interest rates, which make implementing LDI strategies more affordable, to achieve a long-term goal of reducing risks associated with their defined benefit pension plans,” he said.
Canadian institutions are placing less emphasis on environmental, social, and governance (ESG) and diversity, equity, and inclusion (DEI) factors when choosing asset managers.
In 2023, 83 percent of institutions surveyed by Crisil Coalition Greenwich considered ESG in manager selection. That figure dropped to 75 percent in 2024. Similarly, the share of institutions factoring in DEI decreased from about two-thirds to 55 percent over the same period.
