Even as major Canadian investors continue to embrace environmental, social and governance factors, their U.S. counterparts are increasingly rejecting them, leaving Canadians more in line with European attitudes.
This is the conclusion drawn from the latest annual survey on responsible investing trends from RBC Global Asset Management. RBC found the proportion of institutional investors in Canada who use ESG principles as part of their investment strategy rose to 89 per cent from 80 per cent the year prior and 74 per cent in 2018.
Canada continues to be above world averages. Seventy-five per cent globally say they use ESG principles.
The United States is helping drag those global numbers down, though. In this year’s survey, just 65 per cent said they use ESG factors, down from 66 per cent in each of the prior years.
Even more striking, there’s a sharp increase in the proportion of U.S. investors who believe an ESG-integrated portfolio will underperform other portfolios – 26 per cent of U.S. survey respondents this year believe it will underperform, up from 22 per cent in 2019 and 18 per cent in 2018.
The proportion of U.S. institutional investors who believe an ESG portfolio will outperform is 28 per cent – versus 55 per cent in Canada.
In Europe, 94 per cent of respondents say they use ESG principles, and 68 per cent believe they will outperform, versus just 4 per cent who believe they will underperform.
“The survey does show strong ESG integration practices in Canada and that it is aligning a little more closely with Europe than the U.S.,” said Melanie Adams, the head of corporate governance and responsible investment for RBC Global Asset Management. “The trend last year on the U.S. surprised us a little bit last year, and seeing that trend continue this year, I think is really interesting.”
The Canadian government has endorsed ESG concepts, with requirements for disclosure on board diversity written into federal corporate law in 2019. Earlier this year, the Ontario Capital Markets Modernization Taskforce recommending companies be required to disclose climate risks using guidelines developed by the international Financial Stability Board’s Task Force on Climate-related Financial Disclosures.
However, the U.S. government under President Donald Trump has been moving in the other direction.
The U.S. Securities and Exchange Commission, saying it’s concerned about whether ESG-branded mutual funds and exchange-trade funds are following their stated mandate, has asked for comment on possible disclosure requirements. The SEC also recently raised the thresholds for shareholder proposals at companies' annual meetings, likely making it more difficult for shareholders with ESG concerns to get their proposals considered.
The U.S. Department of Labor, which oversees employer-sponsored investment plans, issued a proposed rule in June that said plan fiduciaries may not invest in an ESG investment “if it subordinate[s] return or increase[s] risk for the purpose of non-financial objectives.”
The proposal is expected to increase the regulatory burden on retirement plans that want to select an ESG fund.
Kevin Thomas, chief executive officer of the Vancouver-based Shareholder Association for Research and Education, said in an interview conducted by e-mail, “The U.S. suffers both from a highly-resourced corporate lobby against ESG investing and shareholder engagement, and a receptive administration that is actively mischaracterizing ESG concerns as non-financial. It’s illogical, it’s ideological, it’s blatantly self-interested, it’s wrong on the face of it, but it’s also having an effect.”
RBC surveyed nearly 809 institutional asset managers, their clients and other industry participants from the U.S., Canada, Europe and Asia (mainly Japan) from June 16 to July 30. The U.S. accounted for 55 per cent of responses followed by Canada (23 per cent), Europe (13 per cent) and Asia (5 per cent). The estimated sampling error is plus or minus 3.4 percentage points with a 95-per-cent confidence level.
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