In Partnership with
Addressing climate change: deepening engagement with investors and clients
Morningstar’s expert panel on overcoming hurdles in sustainable investing to align values and financial goals
Read on
Trevor David
Morningstar Sustainalytics
Patricia Fletcher
RIA Canada
Ian Robertson
Odlum Brown Limited
Ian Tam
(Host and moderator)
Morningstar Canada
Industry experts
Trevor David leads the North American client advisory team at Sustainalytics, supporting asset managers and asset owners to integrate ESG research and ratings into their investment strategies. He has led various projects to support investors in developing sustainable investment approaches and creating sustainable fund products.
David is a regular blog contributor and co-author of the report How Investors Integrate ESG: A Typology of Approaches (2017). Prior to joining Sustainalytics, he held sustainability-focused roles in the public and private sectors.
David is a CFA charterholder and a recipient of Canada’s Clean 50 – Emerging Leader and SRI Conference 30 Under 30 awards.
Morningstar Sustainalytics
Trevor David
As chief executive officer, Patricia Fletcher leads the RIA team in pursuit of its mission to grow responsible investment (RI) in Canada by advancing the policy and regulatory environment, deepening industry education, and supporting market development.
Fletcher joins the RIA most recently from the Institute of Corporate Directors (ICD) where she served as vice president, education. During her tenure she was instrumental in driving innovation in the ICD’s flagship Director’s Education Program and the development of numerous ESG-focused programs for Canada’s director community. She led the establishment of Chapter Zero Canada, the Canadian chapter of the World Economic Forum’s Climate Governance Initiative (CGI), and also served on CGI’s global board education committee. Previously, Fletcher held senior roles at the Canadian Institute, the Hay Group, and the Institute for International Research.
She is an accomplished executive in the corporate governance and continuing education industries with more than 20 years of experience in leading commercial information businesses and teams committed to creating content that is impactful and of value.
RIA Canada
Patricia Fletcher
Ian Robertson is a portfolio manager, director, and vice president of Odlum Brown Limited, and a member of the firm’s executive committee. He has a strong interest in the impact of environmental, social and governance (ESG) issues on corporate strategy and valuation and is a regular speaker and writer on responsible investment.
As a practitioner, Robertson integrates ESG considerations into his work with clients. As a researcher (PhD candidate, part time at the University of Oxford), he examines institutional proxy voting on ESG-oriented shareholder proposals. Robertson also combines his practical and academic experience in a UK-based social venture that aims to improve transparency and accountability of proxy voting globally.
Robertson holds undergraduate degrees from UBC and graduate degrees from Dalhousie and Carleton universities, as well as a postgraduate diploma from the University of Oxford. He is a longstanding community volunteer and is a past board chair of the Responsible Investment Association, the UBC Foundation, the UBC Alumni Association, and CFA Society Vancouver.
Odlum Brown Limited
Ian Robertson
In his current role, Ian Tam is tasked with evangelizing Morningstar’s thought leadership across multiple stakeholder groups within Canada’s investment industry inclusive of individual investors, advisors, asset managers, industry trade bodies, and regulators. He participates in a number of industry groups including as a voting member of the Canadian Investment Funds Standards Committee (who oversees mutual fund and ETF categorizations in Canada), the CFA Institute’s Global ESG Technical Committee, and, lastly, the Ontario Securities Commission’s Investor Advisory Panel.
Tam holds a bachelor of applied science in mechanical engineering from the University of Waterloo and holds the chartered financial analyst® designation.
(Host and moderator)
Morningstar Canada
Ian Tam
In Partnership with
Addressing climate change: deepening engagement with investors and clients
Morningstar’s expert panel on overcoming hurdles in sustainable investing to align values and financial goals
Read on
Ian Tam
(Host and moderator)
Morningstar Canada
Ian Robertson
Odlum Brown Limited
Patricia Fletcher
RIA Canada
Trevor David
Morningstar Sustainalytics
Industry experts
Trevor David leads the North American client advisory team at Sustainalytics, supporting asset managers and asset owners to integrate ESG research and ratings into their investment strategies. He has led various projects to support investors in developing sustainable investment approaches and creating sustainable fund products.
David is a regular blog contributor and co-author of the report How Investors Integrate ESG: A Typology of Approaches (2017). Prior to joining Sustainalytics, he held sustainability-focused roles in the public and private sectors.
David is a CFA charterholder and a recipient of Canada’s Clean 50 – Emerging Leader and SRI Conference 30 Under 30 awards.
Morningstar Sustainalytics
Trevor David
As chief executive officer, Patricia Fletcher leads the RIA team in pursuit of its mission to grow responsible investment (RI) in Canada by advancing the policy and regulatory environment, deepening industry education, and supporting market development.
Fletcher joins the RIA most recently from the Institute of Corporate Directors (ICD) where she served as vice president, education. During her tenure she was instrumental in driving innovation in the ICD’s flagship Director’s Education Program and the development of numerous ESG-focused programs for Canada’s director community. She led the establishment of Chapter Zero Canada, the Canadian chapter of the World Economic Forum’s Climate Governance Initiative (CGI), and also served on CGI’s global board education committee. Previously, Fletcher held senior roles at the Canadian Institute, the Hay Group, and the Institute for International Research.
RIA Canada
Patricia Fletcher
Ian Robertson is a portfolio manager, director, and vice president of Odlum Brown Limited, and a member of the firm’s executive committee. He has a strong interest in the impact of environmental, social and governance (ESG) issues on corporate strategy and valuation and is a regular speaker and writer on responsible investment.
As a practitioner, Robertson integrates ESG considerations into his work with clients. As a researcher (PhD candidate, part time at the University of Oxford), he examines institutional proxy voting on ESG-oriented shareholder proposals. Robertson also combines his practical and academic experience in a UK-based social venture that aims to improve transparency and accountability of proxy voting globally.
Robertson holds undergraduate degrees from UBC and graduate degrees from Dalhousie and Carleton
Odlum Brown Limited
Ian Robertson
In his current role, Ian Tam is tasked with evangelizing Morningstar’s thought leadership across multiple stakeholder groups within Canada’s investment industry inclusive of individual investors, advisors, asset managers, industry trade bodies, and regulators. He participates in a number of industry groups including as a voting member of the Canadian Investment Funds Standards Committee (who oversees mutual fund and ETF categorizations in Canada), the CFA Institute’s Global ESG Technical Committee, and, lastly, the Ontario Securities Commission’s Investor Advisory Panel.
Tam holds a bachelor of applied science in mechanical engineering from the University of Waterloo and holds the chartered financial analyst® designation.
Morningstar Canada
Ian Tam
In Partnership with
Addressing climate change: deepening engagement with investors and clients
Morningstar’s expert panel on overcoming hurdles in sustainable investing to align values and financial goals
Read on
Ian Tam
(Host and moderator)
Morningstar Canada
Ian Robertson
Odlum Brown Limited
Patricia Fletcher
RIA Canada
Trevor David
Morningstar Sustainalytics
Industry experts
As chief executive officer, Patricia Fletcher leads the RIA team in pursuit of its mission to grow responsible investment (RI) in Canada by advancing the policy and regulatory environment, deepening industry education, and supporting market development.
Fletcher joins the RIA most recently from the Institute of Corporate Directors (ICD) where she served as vice president, education. During her tenure she was instrumental in driving innovation in the ICD’s flagship Director’s Education Program and the development of numerous ESG-focused programs for Canada’s director community. She led the establishment of Chapter Zero Canada, the Canadian chapter of the World Economic Forum’s Climate Governance Initiative (CGI), and also served on CGI’s global board education committee. Previously, Fletcher held senior roles at the Canadian Institute, the Hay Group, and the Institute for International Research.
She is an accomplished executive in the corporate governance and continuing education industries with more than 20 years of experience in leading commercial information businesses and teams committed to creating content that is impactful and of value.
RIA Canada
Patricia Fletcher
Ian Robertson is a portfolio manager, director, and vice president of Odlum Brown Limited, and a member of the firm’s executive committee. He has a strong interest in the impact of environmental, social and governance (ESG) issues on corporate strategy and valuation and is a regular speaker and writer on responsible investment.
As a practitioner, Robertson integrates ESG considerations into his work with clients. As a researcher (PhD candidate, part time at the University of Oxford), he examines institutional proxy voting on ESG-oriented shareholder proposals. Robertson also combines his practical and academic experience in a UK-based social venture that aims to improve transparency and accountability of proxy voting globally.
Robertson holds undergraduate degrees from UBC and graduate degrees from Dalhousie and Carleton universities, as well as a postgraduate diploma from the University of Oxford. He is a longstanding community volunteer and is a past board chair of the Responsible Investment Association, the UBC Foundation, the UBC Alumni Association, and CFA Society Vancouver.
Odlum Brown Limited
Ian Robertson
In his current role, Ian Tam is tasked with evangelizing Morningstar’s thought leadership across multiple stakeholder groups within Canada’s investment industry inclusive of individual investors, advisors, asset managers, industry trade bodies, and regulators. He participates in a number of industry groups including as a voting member of the Canadian Investment Funds Standards Committee (who oversees mutual fund and ETF categorizations in Canada), the CFA Institute’s Global ESG Technical Committee, and, lastly, the Ontario Securities Commission’s Investor Advisory Panel.
Tam holds a bachelor of applied science in mechanical engineering from the University of Waterloo and holds the chartered financial analyst® designation.
Morningstar Canada
Ian Tam
Share
Share
Trevor David leads the North American client advisory team at Sustainalytics, supporting asset managers and asset owners to integrate ESG research and ratings into their investment strategies. He has led various projects to support investors in developing sustainable investment approaches and creating sustainable fund products.
David is a regular blog contributor and co-author of the report How Investors Integrate ESG: A Typology of Approaches (2017). Prior to joining Sustainalytics, he held sustainability-focused roles in the public and private sectors.
David is a CFA charterholder and a recipient of Canada’s Clean 50 – Emerging Leader and SRI Conference 30 Under 30 awards.
Morningstar Sustainalytics
Trevor David
The role of reporting standards
Published June 17, 2024
Companies
About us
Privacy
Terms of Use
RSS
People
Newsletter
Authors
External contributors
Copyright © 1996-2024 KM Business Information Canada Ltd.
Contact us
News
Your Practice
iNVESTMENTS
bEST IN WEALTH
Resources
Subscribe
Morningstar, Inc. is a leading provider of independent investment insights in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers and owners, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $264 billion in assets under advisement and management as of September 30, 2023. The company operates through wholly or majority-owned subsidiaries in 32 countries. For more information, visit www.morningstar.com/company.
Find out more
Overall, whether it’s through engagement or striving for best in class, it’s crucial for both funds and advisors to maintain a transparent approach. This transparency allows for more nuanced and effective conversations about sustainable investing, ensuring that investors can make informed decisions aligned with their values and investment goals.
Advisors need to be well informed about these nuances to guide their clients effectively. They should know the right questions to ask and where to find pertinent information. Strategies like best in class and engagement are notably challenging. Engagement, in particular, is difficult to measure in terms of its direct impact on positive company outcomes. Funds that focus on climate solutions might select companies with less favourable current ESG characteristics but with potential for significant improvement, which necessitates a nuanced narrative but also opens up the opportunity to provide great value to investors.
Similarly, the best-in-class strategy doesn’t have a universal definition. It typically involves a balanced scorecard approach to evaluate a company’s performance on material ESG issues, but these assessments can vary depending on the source of the research.
When it comes to mainstreaming sustainable investing and fostering informed discussions, Tam stressed, much of the criticism in this area is around the jargon, which can be misleading when terms like “ESG integration” or suggestions to “invest in line with the sustainable development goals” are thrown around without context. Different strategies within sustainable investing often have varied goals, trade-offs, and approaches, which is why the emergence of common definitions in this sector is a welcome development.
There’s a significant nuance across all strategies. Strategies that use negative or exclusionary screening tend to be more straightforward because revenue is commonly used as a proxy to gauge a company’s involvement in either desirable or undesirable products. This data is generally available and uncontroversial. However, David found, even within funds that employ exclusionary strategies focusing on climate, the criteria can differ markedly. For instance, if a fund excludes thermal coal, does that exclusion pertain solely to the extraction of thermal coal, or does it also encompass electricity production using thermal coal? The revenue thresholds set for these criteria (e.g., 0 percent or 25 percent from thermal coal) can lead to very different fund portfolios even under a similar strategic approach.
Intent vs. outcome: ensuring sustainable investment objectives are met
As Tam pointed out, year after year, global findings consistently show that investors often receive returns lower than what funds advertise. This discrepancy largely results from behavioural mistakes: investors tend to sell in a panic or buy too late, chasing trends. Advisors play a crucial role in this context by providing behavioural coaching, which can significantly enhance investor returns by encouraging them to stay invested.
The concept of sustainability could further amplify this value. By integrating sustainable investing principles, advisors not only cater to the growing demand for ethical investment options but also reinforce the importance of a long-term investment perspective. This alignment with sustainability helps mitigate reactive investment behaviours, promoting steadier, more thoughtful participation in the markets, ultimately supporting the cause of maintaining investments through market fluctuations.
Addressing the myth that sustainable investing compromises financial performance, Fletcher and Robertson both emphasized that responsible investing can lead to better risk-adjusted returns. “At this point, most investors recognize that responsible investing is an opportunity for better risk-adjusted returns. It’s about aligning with values while also achieving financial goals,” Fletcher stated.
Robertson added, “Excluding certain sectors from a portfolio does not necessarily hinder performance. In practice, a well-diversified, ESG-integrated portfolio can achieve optimal performance. It’s much more important to have true ESG integration to ensure all material factors are accounted for.”
Overcoming myths about financial performance
When assessing sustainable investment products, Robertson stressed the need for rigorous analysis to ensure they deliver on their promises without engaging in greenwashing. “We look at the analytical integrity of new products. Is this delivering what it promises? Is there potential greenwashing? These are critical questions we need to answer,” he explained.
David added that sustainable investment ratings have evolved to provide more specific and nuanced assessments. “We have developed sophisticated signals to support investors in understanding physical climate risk and transition risk. Our Low Carbon Transition Rating, for example, evaluates a company’s exposure to and management of climate transition risk,” he said.
Assessing sustainable investment products
As sustainable investing has evolved, so too have the reporting standards. David discusses the importance of consistent and transparent climate risk reporting. “A major challenge has been the inconsistency in reporting. For example, less than half of Canadian companies currently report their scope three emissions, which account for a significant portion of a company’s total emissions,” he noted.
However, regulatory efforts are underway to standardize these disclosures. “The International Sustainability Standards Board (ISSB) is working to establish a global baseline for sustainability and climate disclosures. This is being adopted by various jurisdictions, including Canada, with some nuances around effective dates,” David explained.
Robertson emphasized the importance of communicating a client’s portfolio exposure to climate risk. “Clients want to understand the impact of their investments. We provide comprehensive reports on the carbon footprint and risk of their portfolios, and we discuss how companies are working to transition to a lower carbon economy,” he said.
equipped to discuss sustainable investing, organizations like the CFA Institute are providing valuable resources to improve advisor education. “The CFA Institute recently launched a climate investing certificate, which is quite thorough. This is on top of their certificate in ESG investing, which has been very popular. We’re definitely moving in the right direction,” David observed.
Education emerges as a central theme in bridging the knowledge gap between investors and sustainable investing options. Fletcher pointed to efforts by member firms of RIA Canada to educate their advisors through initiatives like the RIA Digital Academy. “Companies like IG Wealth, Desjardins, IA Wealth, and Aviso Wealth are leading the way by committing to put their advisors through our academy. This is about making sure advisors are well-equipped to have these important conversations with their clients,” she said.
David pointed out that while not all advisors are currently well
Educating advisors and investors
advisors should assume this is a topic worth bringing up. The reality is that interest in sustainable investing exists on a spectrum, and even a partial allocation to sustainable funds can be significant,” David explained.
“It’s about personalizing investments and adding value to these conversations. For instance, if you know your client is a vegetarian, it could be worth asking about their views on animal testing and making sure they are aware that this can be incorporated into their investment portfolio.”
Robertson further noted, “One way the investment process can help clients realize their goals and feel comfortable with their investments is by aligning their values with what is being held. This often involves funds that use a screening tool, like a fossil fuel-free fund, for example. You can look inside the fund, see what’s there, and perhaps discuss some areas that are in a gray zone – acknowledging that all companies have some carbon footprint.
“The primary connection we see with clients is their desire for investments that resonate with their values. However, there’s another aspect to consider: the impact on returns. This is where deep thought is necessary, and where analysts integrate ESG – climate factors and other social concerns – into the company models included in a portfolio. We often have long discussions with clients about this. Their initial reaction is usually a values-based connection, but there’s also an analytical angle, grounded in a CFA background, where you really need to identify what’s financially material in companies and how this is integrated into a portfolio.”
David stressed that advisors should proactively initiate discussions about sustainable investing. “Instead of waiting for clients to express interest,
Engaging investors through values
Robertson echoed this sentiment, emphasizing the importance of aligning investment strategies with clients’ values. “Clients often bring up their values during conversations, which helps in tailoring investment portfolios. This alignment not only meets their ethical expectations but also fosters a stronger connection to their investments, potentially leading to more stable investment behaviour,” Robertson noted.
Tam highlighted the increasing interest among investors, particularly millennials and Gen Z, in sustainable investing. Despite this interest, a significant gap exists between investors’ desires and the actual investment in sustainable assets. Fletcher explained that the RIA’s Investor Opinion Survey consistently shows a strong appetite for responsible investing (RI), but also a notable knowledge gap.
“We see that 70 percent of respondents know little or nothing about RI, with 21 percent having never heard of it. However, 82 percent of those aged 18 to 34 expressed a strong interest in learning about RI and investing in it,” Fletcher said. This indicates a massive opportunity for financial advisors to step up and educate their clients about sustainable investing options.
landscape and future prospects of responsible investing.
Tam emphasized that advisors can use this enhanced information and various engagement techniques to deepen relationships with retail investors in Canada. This is particularly pertinent given the significant wealth transfer underway from baby boomers to millennials and Gen Z, who show a marked preference for sustainable investment products.
The distinction between intent and outcome in sustainable investing funds presents another area in which advisors can add value. By scrutinizing what a fund claims to do in terms of sustainable investing versus its actual actions, advisors can make more informed product recommendations, ensuring that investments genuinely reflect the client’s ethical and financial objectives.
The demand for sustainable investing
Additionally, climate transition and reporting have evolved, with recent changes aimed at benefiting investors. These improvements in reporting standards offer clearer insights into how investments are contributing to environmental goals, providing a more transparent framework for investors.
In a webinar hosted by Ian Tam, director of investment research at Morningstar Canada, industry experts delved into the intricacies of sustainable investing. The panel, including Pat Fletcher, CEO of RIA Canada; Ian Robertson, portfolio manager and director at Odlum Brown; and Trevor David, director at Morningstar Sustainalytics, provided a comprehensive look at the current
TODAY'S CANADIAN advisors have a unique opportunity to deepen their engagement with investors and clients by addressing the pressing issue of climate change and its impact on investment choices.
There is a noticeable gap between the surveyed investor interest in sustainable investments and the relatively few assets currently being managed in the retail sustainable investing space. Advisors have an opportunity to take advantage of this gap by helping investors identify opportunities that align with their investment goals.
The appeal of sustainable investing continues to grow as the great wealth transfer to younger investors becomes increasingly relevant, given these investors recognize that they can align their financial goals with their personal values. While socially conscious investors in the past were often willing to sacrifice returns to make a positive impact, today’s investors are looking for the best of both worlds: advancing causes they care about while achieving competitive, if not superior, returns compared to traditional investments.
“Eighty-two percent of those aged 18 to 34 expressed a strong interest in learning about RI and investing in it”
Pat Fletcher,
RIA Canada
“A major challenge has been the inconsistency in reporting. For example, less than half of Canadian companies currently report their scope three emissions, which account for a significant portion of a company’s total emissions”
Trevor David,
Morningstar
“Clients want to understand the impact of their investments. We provide comprehensive reports on the carbon footprint and risk of their portfolios, and we discuss how companies are working to transition to a lower-carbon economy”
Ian Robertson,
Robertson Investment Group
“Year after year, global findings consistently show that investors often receive returns lower than what funds advertise. This discrepancy largely results from behavioral mistakes: investors tend to sell in a panic or buy too late, chasing trends”
Ian Tam,
Morningstar
0%
20%
40%
60%
80%
Source: 2023 RIA Investor Opinion Survey
67%
32%
(RI service gap) 35%
Total respondents who have been asked about RI by their advisor or institution
Total respondents who either strongly or somewhat agree that they would like to be informed
RI SERVICE GAP
Awareness about RI is minimal
Interest in learning about RI is high, particularly among younger investors
Huge opportunity for advisors to educate and align with client values
Responsible investment knowledge gap is real
She is an accomplished executive in the corporate governance and continuing education industries with more than 20 years of experience in leading commercial information businesses and teams committed to creating content that is impactful and of value.
universities, as well as a postgraduate diploma from the University of Oxford. He is a longstanding community volunteer and is a past board chair of the Responsible Investment Association, the UBC Foundation, the UBC Alumni Association, and CFA Society Vancouver.
Companies
About us
Privacy Policy
Terms of Use
RSS
People
Newsletter
Authors
External contributors
Copyright © 1996-2024 KM Business Information Canada Ltd.
Contact us
News
Your Practice
Investments
Resources
Best in Wealth
Subscribe
Share
News
Your Practice
Investments
Resources
Best in Wealth
Subscribe
Companies
About us
Privacy
Terms of Use
RSS
People
Newsletter
Authors
Contact us
External contributors
Copyright © 1996-2024 KM Business Information Canada Ltd.