Despite concerns, Mackenzie says Canadian investors are doing their 'due diligence'
Off the heels of Earth Day, which took place April 22, Mackenzie Investments has released their findings of the fifth annual Earth Day study. Canadians’ interest in sustainable investments, defined as those that seek to generate both financial returns and a positive impact on one or more environmental, social or governance factors, is on the rise. However, a significant number of investors still harbour concerns about this category of investments.
Among the findings, there’s a slight upwards shift in attitude Canadians have when it comes to sustainable investing. 23 per cent of Canadians currently engage in sustainable investing, up from 20 per cent in 2023. Meanwhile, 61 per cent continue to have concerns about trust and transparency, especially when it comes to greenwashing. 43 per cent of investors believe that sustainable investing lacks clear guidelines or standards and an equal number feel that sustainable investments tend to deliver lower returns than traditional ones.
Fate Saghir, senior vice-president of sustainability at Mackenzie Investments, said the findings have been consistent with market reaction and long-term value creation, which attributes to why more and more Canadians are investing in sustainability. She also highlights the differences U.S. investors have towards ESG and sustainable investing versus Canadian institutional investors.
“If you think about where our registered savings plans might be, you're putting money away for you know, ten to twenty years longer,” she says. “It's really important that you're thinking about not just the financials, but you're thinking about, investing in companies that are equally responsible and how they behave, as well.”
That's become a big driver to sustainable investing, in addition to disclosures, especially at the mutual fund level, “where companies are starting to relay to investors exactly how their funds are considering nonfinancial factors in their investment decisions and that's consistent with long term value creation,” she added.
Despite the market environment and volatility and the outflows from the industry, the stability and the number of Canadians investing in ESG is good, but she would like to see that number move higher. She also hoped that the concern around greenwashing would have been addressed but noted the industry still has work to do around addressing those concerns.
While the industry has seen some pushback against ESG by investors in the U.S., Saghir noted that it hasn’t really moved into the attitudes of Canadian institutional investors. “Institutional investors in Canada have said ‘This is just table stakes, and some of the things that we're seeing in the US, we don't want it to come into Canada,” she highlighted.
Saghir also references a report by Millani, which found that some institutional investors communicated the pushback has been good for business as it has brought opportunities to gather more assets for those who can demonstrate they already have a track record in integrating ESG. 89 per cent of investors surveyed in the Millani study reported that ESG pushback in the U.S. did not impact their investment approach.
As for greenwashing, that won’t be so much of a problem for Canadian institutional investors because they’re doing extensive due diligence, Saghir added. “They're going through data sources and running attribution analysis of how ESG might be factoring into their investment decisions,” she said.
The challenge Canada faces when it comes to ESG investing, at least from an institutional standpoint, is there is little mandating for organizations and corporations to report in a consistent manner on their sustainability risks and opportunities.
The International Sustainability Standards Board will soon change that, she says, as companies will be asked to disclose what is financially material to the company. Mackenzie, as an asset manager, will likely need to disclose climate risk in their portfolios as it could be deemed a material factor, Saghir added.
Mackenzie’s study also found that Canadian investors are generally familiar with the concept of energy transition, which focuses on shifting from traditional to low-carbon and renewable energy sources, to address global warming and related nature or biodiversity loss. Roughly 69 per cent believe that investing in the energy transition will create a better world for future generations and have a long-term positive impact on the environment 67 percent and on our health.
Saghir added sometimes companies forget many ESG institutional investors are offering pension plans to their own employees or their own members and “providing education is going to be key, especially as disclosure standards come forward, ensuring that Canadians are able to articulate exactly what they're invested in.”
