Sustainable investment funds release more data and details as investors seek transparency

There’s not just one way to define sustainable investing, but more and more fund providers in the space are starting to come up with hard numbers to back up their claims.

The trend of increased disclosure comes as sustainable investing experiences both rapid growth and increased scrutiny from regulators and investors alike, as concerns about the funds’ environmental credentials are overblown.

Wealthsimple Inc., for its part, recently revealed the results of a climate audit on their two socially responsible investment funds after an advocacy group asked how they formed.

Ben Reeves, chief investment officer at Wealthsimple, said they initially set parameters on funds such as not investing in fossil fuels and eliminating major emitters in other sectors, but lacked hard data such as how the funds actually perform depending on the climate.

“If you want to try to invest in a socially responsible way, you have to really understand the details of what you are investing in and why,” he said.

Mr Reeves said he found many of the ratings for sustainable investing to be an aggregation of so many factors that they were unreliable. Wealthsimple therefore opted for measures regarding carbon emissions for the companies of their funds.

An audit by the shareholder proxy firm Institutional Shareholder Services showed that both Wealthsimple funds have a measure of carbon intensity – the amount of carbon dioxide generated by companies relative to revenues – well below the benchmarks of the Marlet. Companies have also aligned with the goal of keeping global warming at 1.5 degrees, against a benchmark of around 2.5 degrees warming.

The latter measure, known as the temperature alignment score, is becoming increasingly relevant among the many ways to measure climate impacts, said Hernando Cortina, head of index strategy at ESG’s division. ISS.

“The important reason is that this is a forward-looking measure, it doesn’t just give you what the data looks like today, but an estimate of where companies are going.”

Mr Cortina said the measurement, like all of these indicators, requires assumptions about a range of factors, such as actual carbon emissions for non-reporting companies, as well as the reliability of company commitments and efficiency. of their policies to reduce carbon emissions. to actually be, but that it becomes more reliable as disclosures increase

NEI Investments, which touts itself as “Canada’s leading provider of responsible investing solutions,” is also looking to provide more climate data on its funds, but it is still struggling to find the right metrics, said John Bai, director of investments at NEI.

“We’re trying to figure out who the best suppliers are and what’s the right context for all of this, because it’s not just a simple measure as far as we are concerned.”

There have been more and more calls for more disclosure so that investors can make decisions that take sustainability measures into account.

Eight of Canada’s largest pension funds with $ 1.6 trillion in assets released a joint statement last year calling for more data on environmental, social and governance information to strengthen decision-making and assessments risks.

“We call on companies and investment partners to contribute to lasting change by placing sustainability at the center of their planning, operations and reporting,” he said.

The calls come as the sustainable investing industry has seen tremendous growth, with Canadian investment reaching $ 26 billion in the second quarter, up 130% year-over-year, Morningstar said.

Regulators have also shown increased interest in the sector.

In the European Union, new laws came into effect earlier this year that require more climate-related disclosures by companies, as well as more justifications for sustainability claims.

The United States is also cracking down. The Wall Street Journal reported last month that the Securities and Exchange Commission and the US Department of Justice are investing in allegations that Deutsche Bank AG’s asset management division, DWS Group, overestimated the sustainability benchmarks of their funds.

In Canada, the Ontario Securities Commission this year examined a few dozen funds to see how well their sustainability marketing claims matched investment products. A report on the review said it found no issues, although there is also limited regulatory guidance in Canada on what constitutes a sustainable investment.

However, regulating sustainability claims won’t be easy, as there are so many different approaches in the space.

NEI’s strategy, for its part, has focused more on board engagement by investing in companies such as Suncor Inc. and pushing them to improve their practices through shareholder resolutions and conversations with management rather than just not owning the shares, so a measure like carbon intensity score doesn’t capture what they’re trying to do.

“Just because you don’t invest in these companies doesn’t mean their carbon footprint will go away,” Bai said.

“We’ve taken the other position, in that we’ll own the business and engage with them, let’s say it’s really important that they start to transition their operations to a net zero world.”

Mr Reeves said Wealthsimple does not claim how much the funds will help the environment, but rather that ETFs are designed for investors who want to participate in sectors of the economy that are not actively contributing to the climate crisis.

He said people can help the environment much more effectively by taking actions such as voting for leaders who will tackle climate change, improving the energy efficiency of their homes, or paying a green premium when they leave. purchases.

“If you really want to be part of the solution, you have to act yourself. Don’t just buy ETFs.

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