If a transition to a net-zero carbon economy was not top of mind for Canadian investors before the February power outage in Texas, it appears to be now. Speakers at the Responsible Investment Association’s (RIA) February 25 ESG Symposium repeated a common theme: all investors and all portfolio companies have to get started leveraging investment dollars to reduce Canada’s carbon footprint; the cost of inaction is too high.
Oikocredit Canada Board members Julie Scott and Ellen Pekilis discuss why the message of this Symposium matters to impact investors
What did you learn about Canada’s transition finance taxonomy?
Julie: Some of the architects of the Canadian taxonomy spoke and explained it is a “made-in-Canada” playbook defining the assets and investment products aimed at getting Canada’s resource-based economy to net-zero carbon emissions by 2050. Speakers pointed out that what’s important is to get companies started on issuing green or sustainable securities and to understand that some companies will move faster than others. The key is momentum. The concern is perfect being the enemy of the good - if we’re too ambitious and critical we won’t galvanize all the sectors that are needed to transition to a net-zero economy.
Ellen: A benefit of a green taxonomy is that it invites us to include a continuous improvement element and take a broader, holistic view and consider the activities necessary to enable the transition. It’s very future-oriented, not just about historic carbon footprint. Are organizations identifying and taking advantage of all the opportunities?
Where do Canadian retail investors fit in the transition finance taxonomy?
Julie: Speakers commented that retail investors are interested in responsible investing and supporting the transition economy but don’t know where to start. While they want their investments to have a positive impact, their financial advisors can’t always respond because of the limited understanding of product offerings. The challenge is how to embed sustainability in the retail investment chain. Some speakers suggested that the Know Your Client suitability test should include climate change and sustainability questions. At BNP, the French Bank, investment advisors educate clients on sustainability and link Sustainable Development Goal (SDG) targets to their investment products.
Ellen: Smaller funds without the dedicated resources for complex analysis can just focus on identifying and decreasing the most carbon intense holdings in their portfolio. That action alone can make a big difference.
Does the transition finance taxonomy include any social goals?
Julie: While speakers clarified that the taxonomy is 100% focused on a net-zero economy by 2050, it does incorporate the concept that investments at minimum ‘do no harm’ and at best improve social conditions. As one speaker put it, nobody wants to buy a transition bond or security of a company where the board or management lacks ethnic or gender diversity. Adding social key performance indicators to a bond or security should include safeguards for achieving them.
Ellen: Proxy voting guidelines increasingly address diversity and inclusion, gender balance, and including related metrics in the executive compensation plan. There is a lot of room for improvement in relation to expanding the definition of diversity beyond women to other diversity categories. While a fair number of shareholder proposals are withdrawn, management and boards pay a lot of attention to shareholder proposals. It can be a very effective strategy to start a dialogue and spur the organization to take action.