2024 year in review

The responsible investment landscape experienced some significant ups and down throughout 2024. Lows included a slowdown in global fund flows after years of strong growth, and push-back on climate rules and diversity, equity and inclusion policies in the U.S. Highs included continued momentum on the recognition of risks to natural assets, with US$17.7 trillion in assets under management committed to TNFD-aligned reporting,^[1] while Canada released its first sustainability disclosure standards.^[2]
 

Sustainable funds in Canada were in redemptions in Q3 according to data from Morningstar, although fixed income was a bright spot.^[3] Notably, the quarter saw not a single new fund in the category. That’s a clear trend in Europe and the U.S. as well, with sustainable fund launches declining and closures rising. All in all, from an investment product perspective, it appears that growth in labelled sustainable funds is moderating after a few years of heightened interest.
 

The goal of this article is to reflect on what we said in our outlook piece from 2024, and to provide updates as we continue to monitor the development of important issues. Meanwhile, the uncertainty level will reach new highs this year after Prime Minister Justin Trudeau’s decision in January to step down. An election is required by October anyway, but now, the federal leadership situation is even more chaotic. We expect very little movement on the policy front for some time, and when it does finally move, we see the potential for significant change that is likely to impact the investment landscape.

Labour disputes took a bite out of the economy

We continue to see that the challenges of affordability facing everyday consumers manifest in various ways. Early last year we expressed the view that labour disputes were likely to increase due to expectations of higher—or at least steady—inflation. Data from the federal government show the number of strikes in Canada jumped to 799 in 2024 from 762 the year before; these are extremely high numbers relative to past years.^[4] The negative economic impacts of some long-lasting strikes, such as the one at Canada Post, caused the government to step in and order employees back to work.

The Canada Post strike hit hard, as it occurred during the busiest postal season of the year in November and December. As of December 13, the daily cost to small businesses reached $100 million per day for a total cost of $1.6 billion by the time the strike was ended.^[5] In August, the railway strikes at Canadian National Railway and Canadian Pacific Kansas City were halted due to the threat to the Canadian economy, as it was estimated that the cost could reach $341 million per day, or 4% of the country’s gross domestic product.^[6] In November, work stoppages at ports in Vancouver and Montreal were halted due to the negative economic impact, which affected $1.3 billion in the value of goods transported each day.^[7]

And as if we needed further evidence that higher inflation is having a disproportionate effect on the populace, Statistics Canada reported in October that the gap in disposable income between the highest and lowest earners was at its widest in Q2 2024 since the agency began collecting the data in 1999.^[8] StatCan attributes the gain at the top end of the income range to the positive effect of high interest rates on saving and investment accounts, whereas “lower income households are more likely to have a limited capacity to take advantage of these higher returns.”^[9]

Worker’s rights is a frequent topic of corporate engagement for us. Last year we spoke with Agnico Eagle and Newmont in the mining sector, and with Gildan Activewear on their operations in Honduras and Bangladesh. We also spoke with Walmart on the concept of a living wage for their employees. At Amazon and Starbucks, to name just two, we have supported shareholder resolutions calling for third-party audits of those companies’ commitment to freedom of association and collective bargaining.

Critical minerals demand shows no sign of slowdown

The chart below shows that capital spending on critical minerals production increased 10% globally in 2023 from the year before, according to the International Energy Agency.

Capital expenditure on nonferrous metal production by 25 major mining companies, 2011-2023

^{Data source: International Energy Agency, as of May 17, 2024. https://www.iea.org/data-and-statistics/charts/capital-expenditure-on-nonferrous-metal-production-by-25-major-mining-companies-2011-2023}

In November 2023, the Canadian government launched a $1.5 billion Critical Minerals Infrastructure Fund which would be available over seven years to support clean energy and electrification initiatives to enable the sustainable development of the country’s critical minerals.^[10] This was part of the 2022 Federal Budget allocation of $3.8 billion over eight years to support the Critical Minerals Strategy^.[11] As of December 2024, some conditionally approved projects include the Northwest B.C. Highway Corridor Improvement Project (copper, molybdenum, nickel, cobalt and zinc) and the Taltson Expansion Project in the Northwest Territories (bismuth, cobalt, lithium, rare earth elements and zinc).^[12]

In November 2024, the U.S. House of Representatives passed the Critical Mineral Consistency Act which would effectively streamline permitting and include copper, electrical steel, silicon and silicon carbide on the critical minerals list.^[13] The bill now awaits Senate approval.

In its Critical Minerals Policy Tracker, the U.S. International Energy Agency has identified around 450 policies and regulations globally^[14] aimed at ensuring sustainable critical mineral supplies, demonstrating broad recognition of their importance and a concerted effort to formalize their acquisition and use. As we said last year, we expect the demand for critical minerals to increase and that Canada will benefit from this demand, as well as investors.

But the surge in demand for these minerals due to decarbonization and cleantech initiatives cannot be met through the historic practice of aggressive mining. The industry must approach the demand challenge carefully, with greater consideration for all stakeholders and the long-term impacts of mining operations, taking into account the complex range of human and environmental factors. Our Head of Stewardship Jamie Bonham puts it this way:

“Cutting corners on responsible mining practices may paradoxically not result in faster development. It increases the friction in host communities and subsequently increases the risk of permit delays, litigation, blockades, protests and outright cancellation of projects, not to mention the risk of nationalization of assets. There is a real business case to get this right.”^[15]

Challenges for Europe’s electric vehicle industry
While this was not a topic that we tackled in our 2024 outlook, headwinds facing the makers of electric vehicles (EVs) in Europe bear a closer look. The point is to highlight that transitioning to a low-carbon economy will not be a smooth one, presenting investment challenges and opportunities along the way.

The auto sector in Europe represents approximately 6% of total employment in the region,^[16] and in 2023, it contributed 7% to gross domestic product.^[17] The transition to EVs is largely driven by the region’s “Fit for 55” policy, which states that all new cars and vans registered in Europe must have zero emissions by 2035.^[18] While progress has been positive as electric car registrations in 2023 were 23.6% of total new car registrations,^[19] there have been headwinds such as higher interest rates, which negatively impacts consumer demand, as well as lower government subsidies.

On top of that, low-cost EV makers from the Asia Pacific region, specifically China, are challenging the European market, and increased competition from Chinese original equipment manufacturers (OEMs) is hurting the region’s auto manufacturing base. Because of these challenges, some European OEMs, including Volvo, are modifying their targets for phasing out internal combustion engine vehicle sales.^[20]

In November, the European auto supply chain also witnessed the bankruptcy of Northvolt, a private Swedish battery manufacturer that was funded by the European Investment Bank, certain European OEMs and financial institutions, as well as Canadian pension plans. Northvolt faced funding issues, production delays, the loss of a major customer and weaker demand for EVs.^[21] Northvolt filed for Chapter 11 bankruptcy in the U.S. and a restructuring plan is underway, though the company’s future is far from clear.

No one expected the energy transition to be easy. As with any large-scale capital spending initiative, long-term planning is required. But even with the best intentions and strategies, unexpected developments are bound to shake things up. This creates risks and opportunities that investors must be mindful of as the transition progresses.

Recognition of Indigenous rights and economic reconciliation

One of the more significant announcements made by the federal government in the 2024 budget was to provide a $5 billion Indigenous Loan Guarantee Program. The program would facilitate access to capital for Indigenous governments and their wholly owned/controlled entities. It is worth noting that certain provinces already have programs, with the federal program intended to support projects nationwide across a more diverse range of projects. While the program is indeed a much-needed step in providing the capital needed by Indigenous governments, the on-reserve infrastructure gap in Canada is considerably larger, with an estimated $350 billion in funding required.^[22]

From a standards perspective, the Canadian Sustainability Standards Board (CSSB) released in November a paper acknowledging Indigenous participation and feedback related to Indigenous issues during the public consultation on Canada’s first sustainability disclosure standards. The CSSB’s multi-year strategic plan and 2025 annual plan reinforces its commitment to involving Indigenous Peoples, communities, and organizations in its standard-setting process.^[23]

Other positive developments we would call attention to are the purchase of Alberta-based casino operator Pure Canadian Gaming by Indigenous Gaming Partners,^[24] and the formation of Cedar Leaf Capital, the first Indigenous owned and led investment dealer in the country.^[25] In the energy sector, law firm Fasken observes a growing trend in Indigenous equity investments across the country, with a sharp uptick in Alberta.^[26]

While 2024 delivered a number of positive events, it also confirmed some of the challenges the economy and society are facing. We will continue to monitor these developments and others as the responsible investment landscape evolves in 2025, with a particular focus on relevant domestic policy as the country’s leadership drama eventually settles down. We see the potential for significant changes to Canada’s energy policy that are likely to impact financial markets, and we expect to participate in those conversations where we can.

^{[1] https://tnfd.global/over-500-organisations-and-17-7-trillion-aum-now-committed-to-tnfd-aligned-risk-management-and-corporate-reporting/. TNFD stands for Taskforce on Nature-related Financial Disclosures.}

^{[2] https://www.frascanada.ca/en/sustainability. The author of this article, Adelaide Chiu, is a member of the Canadian Sustainability Standards Board.}

^{[3] https://www.morningstar.com/business/insights/blog/funds/global-sustainable-fund-flows-quarterly-data.}

^{[4]  https://www.canada.ca/en/employment-social-development/services/collective-bargaining-data/work-stoppages/work-stoppages-year-sector.html.}

^{[5] https://www.cfib-fcei.ca/en/media/cfib-statement-on-the-pause-in-strike-action-at-canada-post.}

^{[6] https://financialpost.com/news/canada-railway-shutdown-cost-341-million-each-day-moodys.}

^{[7] https://www.reuters.com/world/americas/canada-moves-end-disputes-ports-vancouver-montreal-2024-11-12/.}

^{[8] https://www150.statcan.gc.ca/n1/daily-quotidien/241010/dq241010a-eng.htm.}

^{[9] https://www150.statcan.gc.ca/n1/daily-quotidien/241010/dq241010a-eng.htm.}

^{[10] https://www.canada.ca/en/natural-resources-canada/news/2023/11/government-of-canada-launches-15-billion-critical-minerals-infrastructure-fund.html.}

^{[11] https://www.iea.org/policies/25159-canadas-federal-budget-2022.}

^{[12] https://www.canada.ca/en/campaign/critical-minerals-in-canada/federal-support-for-critical-mineral-projects-and-value-chains/critical-minerals-infrastructure-fund1.html.}

^{[13] https://www.mining.com/us-house-of-representatives-approves-2024-critical-mineral-consistency-act/.}

^{[14] https://www.iea.org/data-and-statistics/data-tools/critical-minerals-policy-tracker.}

^{[15] https://clean50.com/navigating-the-critical-minerals-challenge-the-case-for-responsible-mining-in-the-energy-transition/.}

^{[16] https://single-market-economy.ec.europa.eu/sectors/automotive-industry_en.}

^{[17] https://gmk.center/en/posts/eu-automotive-sector-shows-good-growth-how-will-it-affect-steel-consumption/.}

^{[18] https://ec.europa.eu/commission/presscorner/detail/%20en/ip_22_6462.}

^{[19] https://www.eea.europa.eu/en/topics/in-depth/electric-vehicles.}

^{[20] https://www.media.volvocars.com/global/en-gb/media/pressreleases/333213/volvo-cars-adjusts-electrification-ambitions-remains-committed-to-fully-electric-future.}

^{[21] https://www.reuters.com/technology/northvolt-files-chapter-11-bankruptcy-us-2024-11-21/.}

^{[22] https://www.aptnnews.ca/national-news/afn-infrastructure-budget-federal-government-billions-housing-ottawa-ontario/.}

^{[23] https://www.frascanada.ca/en/sustainability/documents/cssb-proposed-2025-2028-strategic-plan#:~:text=Proposed%202025%2D2028%20Strategic%20Plan%20Consultation&text=This%20includes%20establishing%20Canadian%20reference,contributing%20to%20international%20s.}

^{[24] https://www.canadiangamingbusiness.com/2024/12/11/first-nations-gaming-group-acquires-pure-canadian-gaming/.}

^{[25] https://www.newswire.ca/news-releases/cedar-leaf-capital-canada-s-first-majority-indigenous-owned-investment-dealer-has-received-regulatory-approval-to-begin-operations-814696870.html.}

^{[26] https://www.fasken.com/en/knowledge/2024/04/update-on-trends-in-indigenous-equity-investments-in-canada.}