Takeaways from the world’s preeminent responsible investment conference

The Principles for Responsible Investment hosted their sixteenth annual conference in Toronto a few weeks ago, where there was clear evidence that investors everywhere continue to push for opportunities to improve companies’ long-term sustainable value. The event brought together more than 1,500 delegates. NEI has been a signatory to the Principles for Responsible Investment since 2006 and attended the conference, as well as a constellation of related side events. NEI sub-advisors were also there in force, with representation from Alliance Bernstein, Wellington Management, Impax Asset Management, Amundi Asset Management, Addenda Capital, Desjardins Global Asset Management and Federated Hermes.

Here are a few of our top takeaways and tidbits from the conference, as well as related side events:

• Canada’s long-awaited sustainable investment guidelines (known as a “taxonomy”) took a step forward with the federal finance minister’s announcement of a planned approach and deadline. But it was a small step.
• Indigenous Rights were more in focus, given the Canadian context, with a hope that investors from other regions were taking notes.
• Investors appeared to be more focussed on opportunities in the energy transition rather than the risks, as they seek to pull forward the return potential of a global evolution to a low-carbon economy; we see this as evidence of healthy progress.
• Speakers encouraged investors to ramp up their policy engagement programs to have influence at a higher level.
• The World Bank and a small group of sophisticated investors are on the cutting edge of responsible fixed income as they experiment with “outcome bonds.”Transition planning (versus target setting) was the topic of the hour at most climate panels.
• Protecting nature is being more heavily acknowledged as a global imperative for achieving a low-carbon economy. In the words of Mark Carney, who was a speaker at the conference, “There is no net zero without nature.”
• Anti-ESG headlines and rhetoric appears to be isolated somewhat to the U.S.; investors in other jurisdictions are unfazed.
• Sustainability strategies must be auditable if they are to be decision useful—keep good records.
• Issuers that are not disclosing information and data deemed relevant by investors will have the data points estimated for them.
• One speaker cautioned against diverting ESG “implementation” resources toward reporting, which is becoming a growing burden as reporting demands increase.

“Made-in-Canada" green taxonomy... not made yet*

Two climate-focused announcements from the Department of Finance demonstrated that even though the federal government is moving slower than investors would like, policymakers at least understand the direction of travel.

Finance Minister Chrystia Freeland explained that the government now has a formal plan in place to produce the long-awaited green taxonomy, which will “draw from the recommendations of the [Sustainable Finance Action Council] and international organizations, as well as from international taxonomy precedents.” In a one-sentence summary from the backgrounder published on October 9, the government says: “The aim of the Canadian taxonomy would be to mobilize investment in support of Canada's net-zero transition by enabling investors to understand and communicate which key activities and investments will deliver a Canadian net-zero economy.”

But the taxonomy is still a long way off. The government is in the process of engaging an arms-length, third-party organization to develop it, with a deadline for delivery of 12 months from the point that the work begins. Even then, the taxonomy would be applicable for just “two to three priority sectors.” The priority sectors are electricity, transportation, buildings, agriculture and forestry, manufacturing, and extractives, including mineral extraction and processing, and natural gas. In the meantime, Canadian investors will continue to reference taxonomies from other jurisdictions and develop ad hoc definitions and frameworks.

Perhaps more significant was the finance minister’s announcement that the government intends to amend the Canada Business Corporations Act to require climate-related financial disclosures for “large, federally incorporated private companies.” This is certainly a step in the right direction for mandatory climate disclosure, but again, there remain many unknowns. The “substance” of the disclosures has yet to be determined, as well as a definition of the word “large” in relation to the companies that would be affected.

Indigenous Rights get more attention

Indigenous Rights and reconciliation, as well as Indigenous-led investing, were also important topics at many sessions. This underscores the relevance of these critical issues in the Canadian context. At one side event that was focused on sustainability disclosures, there was recognition of the Canadian Sustainability Standards Board’s commitment to Indigenous inclusion in standard setting, where Canada is known to be leading the way relative to other regions’ disclosure efforts.** At another side event, the discussion centred around the need to develop an Indigenous sustainable financing framework that includes Indigenous Rights, perspectives, knowledge, experiences and outcomes.

One speaker identified the “generational opportunity” to get critical mineral extraction right, by involving all stakeholders and Rightsholders in the process, taking advantage of technological advancements, encouraging tax breaks, and other responsible mining practices. It was pointed out that education of investors in this area remains a stumbling block. In short, progress is being made, but there is a long way to go.

Investors encouraged to engage policymakers

Policy engagement is surfacing as a priority tool for influencing change. David Russell, Chair of the Transition Pathway Initiative, put it bluntly: “Climate change is a policy game… we need to do more on policy.”

Policy engagement means speaking with governments, regulatory bodies, standard-setters, and other similar organizations with the ability to alter and level the playing field for an entire jurisdiction. It is a crucial tool for helping overcome systemic challenges that cannot be addressed with as much effectiveness as engaging company by company.

Typically, as one panelist at the conference pointed out, investment managers have not participated in policy discussions in any large-scale, meaningful way. They cited COP 26 as a turning point in that regard and encouraged investors in the room to grow their participation in policy discussions around climate change. This reflects our own experience. We have been engaging policymakers over many years, and we have observed that while more investors are indeed dedicating resources to policy work, on the whole, the investment industry has not been at the table when important policy decisions are made. To underscore the point that this marks a change in approach, one conference session took the form of a classically staged debate on the question of whether investors should continue to prioritize corporate engagement as a changemaking activity, or switch to policy engagement.

Putting anti-ESG sentiment into perspective

The NEI team also observed that the “anti-ESG” movement making headlines in North America in the past couple of years, but more specifically in the U.S., did not seem to register as much of a problem among participants. That was likely due to the global nature of the conference, with a large contingent of investment firms from Europe and Australasia. When looked at through such a wide lens, it becomes clear that ESG nay-sayers have had little impact on the advancement of responsible investment perspectives worldwide.

Next year, the conference moves to Brazil. We trust that in that time, investors will do all that they can to move the needle even further on important challenges such as the energy transition, worker’s rights and child labour, nature loss, water conservation, Indigenous Rights, ethical AI, responsible mining, and many other areas of risk and opportunity.