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‘Responsible’ investment vehicles see demand surge

Responsible investment techniques range widely from applying environmental, social and governance (ESG) factors in proxy voting decisions to more direct strategies to invest in green technologies, or to finance “impact” community investment projects that provide social or environmental benefits. Some organizations screen investments to choose the “best in class” companies in different sectors based on positive ESG performance, while some exclude certain investment sectors entirely, such as tobacco producers or weapons manufacturers.

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The value of Canadian investments managed under "responsible investing" criteria climbed dramatically over two years as money managers increasingly added environmental, social or governance factors to their investment decisions.

A survey of investment managers shows Canada had $1.01-trillion of assets under management at the end of 2013 that were invested using some form of responsible investing criteria, a 68-per-cent increase from $601-billion two years earlier.

A report to be released Thursday by the Responsible Investment Association and RBC Global Asset Management says 31 per cent of financial assets under management in Canada's investment sector are now invested using responsible investing strategies.

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Responsible investment techniques range widely from applying environmental, social and governance (ESG) factors in proxy voting decisions to more direct strategies to invest in green technologies, or to finance "impact" community investment projects that provide social or environmental benefits. Some organizations screen investments to choose the "best in class" companies in different sectors based on positive ESG performance, while some exclude certain investment sectors entirely, such as tobacco producers or weapons manufacturers.

RBC chief investment officer Dan Chornous, who oversees the bank's investment management division, said ESG criteria are increasingly being used by investment managers to identify risks facing companies that aren't captured by traditional investment analysis. "We have begun to more formally integrate ESG criteria across all of our investment classes," Mr. Chornous said.

Most assets identified in the survey – $821-billion – are held by major pension funds that use some form of responsible investing criteria. A further $192-billion is held by other investment managers such as mutual funds.

Retail investors are also increasingly seeking access to responsibly managed funds. Retail funds using responsible investing criteria , including mutual funds and venture capital funds, saw a 30-per-cent growth in assets in the two years ended Dec. 31, 2013, the study said.

Deb Abbey, chief executive officer of the Responsible Investment Association, said the global investment community is rapidly shifting its attitudes to recognize the importance of using broader investing criteria. Studies show U.S. assets managed under responsible investment criteria climbed by 76 per cent over two years, she said, while European assets were up 55 per cent.

"There's a lot of evidence out there that a lot of those issues are material and can affect performance in their portfolios, so there's not only North American pressure to do that but also global pressure to incorporate those issues into the process," she said in an interview.

Ms. Abbey said the huge growth rate in responsible investing over the past two years stems in large part from the rapid increase in assets held by Canadian pension funds applying ESG investment criteria and even adopting formal investment codes such as the United Nations-supported Principles for Responsible Investment.

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Many of Canada's largest money mangers are facing growing demands from their clients for money managed under responsible investing criteria, she added.

"The pressure is coming from asset owners, and [money] managers are responding," she said.

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About the Author
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

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