Earth Day is an opportunity to remind us that progress in responsible investment in portfolios only takes small steps. On the ground, the priority of companies is simply elsewhere. However, they could be overtaken by biting and more demanding shareholder activism.
Let’s look at the figures published by the Investment Funds Institute of Canada. At the end of 2023, mutual fund assets focused on responsible investing totaled $40 billion and exchange-traded funds (ETFs) focused on responsible investing totaled $16.3 billion. We are therefore talking about barely 2.1% of total mutual fund assets and 4.3% of total ETF assets respectively. Small consolation is that mutual funds focused on responsible investing were one of the few segments of the mutual fund industry to show positive growth last year.
As we know, there are still many irritants to overcome. The three main obstacles to the growth of responsible investment repeatedly mentioned in surveys remain, in order, greenwashing, the absence of standards or standardized disclosure frameworks and the lack of reliable data.
On this last point, it must be said that the risks associated with environmental, social and governance (ESG) issues attract little attention from company boards of directors. In its 2024 survey on governance in Quebec, the College of Corporate Directors measured that the most critical risk for the future performance of the company defined by boards of directors (CA) is the recruitment and retention of personnel. , with a criticality index of 86.9%. In the list of risks qualified as very critical, we then find the economic context (index of 78.4%), cybersecurity (73.7%), the evolution of markets and competition (70%), financing and subsidies (64.7%), digital transformation and automation (64.2%) then, at the very end of the passing grade, the departure and succession of the CEO (60.2% ).
Below 60% of the index, we find environmental issues (56.7%), governance (56.4%), organizational culture (55.8%), social issues (54.9%) and the legislative context and local politics (53.3%). Pandemics and disasters (49.4%), supply chains (48.8%), artificial intelligence (47.6%) and the international geopolitical context (41.1%) round out the risks and threats to watch on the CA radar.
Among SMEs too, the measures taken to combat climate change come up against imperatives cited as being more immediate, such as inflation, high interest rates, labor shortages and lack of necessary knowledge and expertise. However, “their large carbon footprint exposes them to serious transition risks, in addition to the physical risks they face due to climate change,” recalls the Business Development Bank of Canada (BDC). The institution published a study in January in which it said it estimated that SMEs generate 52% of all greenhouse gases produced by Canadian businesses. That’s the equivalent of 41% of Canada’s total emissions.
We can read that half of Canadian SMEs have already taken measures to reduce their carbon footprint over the last five years, while 32% have done nothing and do not intend to act. That said, 7% of Canadian SMEs, and 14% of companies that have taken climate action, have calculated their GHG emissions. And if the total footprint must cover GHG emissions extending across the entire value chain (known as scope 1, 2 and 3), only 9% of SMEs which have calculated their GHG emissions over the The last five years have taken into account the entire spectrum.
Shareholder activism
Yet shareholder activism has never been as active as in 2023. According to the investment bank Lazard, shareholder campaigns against company management reached a record level last year. And the trend is expected to continue.
Themes of a financial nature remain important, particularly in the United States where the activism of investors seeking to take control of the company and maximize profits “has made a comeback”. But ESG criteria continue to progress, we can read in a text from Agence France-Presse. “Campaigns are no longer exclusively driven by investors. Some NGOs are launching real campaigns […] supported by the creation of several funds specialized in the matter”, underlined in December 2022 a report from the Club des juristes on shareholder activism. Institutional funds (such as pension funds) are also entering the fight, as are smaller alternative funds (“hedge funds”), underlines Lazard.
Closer to home, Investors for Paris Compliance measured, among the 35 investors evaluated, that the rate of support for climate resolutions generally increased last year. Just over half of investors voted more in favor than against climate resolutions. The analysis shows that pension fund managers tended to vote more in favor of climate resolutions than private asset managers, which can be explained by the fact that the former have a longer-term vision. term of their investments.
We want measurable results
Another observation of interest emerges from a biannual study carried out in December by the responsible investment consulting firm Millani among 32 Canadian asset holders and managers representing approximately $4.5 trillion in assets under management. For them, integrating ESG criteria into the decision-making process was just one step. They are now moving into impact investing and want to achieve measured results from their investments establishing both the opportunities and risks related to the sustainability of their business, as well as the impacts of their operational activities on people and the environment. ‘environment.
We raise the pressure another notch.