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Operators check the solar panels of a photovoltaic power plant installed by Generale du Soleil (GDS) and operated by Energ'iV SEML in a former landfill in Guignen, western France, on Dec. 8, 2020LOIC VENANCE/AFP/Getty Images

The rise of environmental, social and governance (ESG) investing has been one of the biggest finance stories of the past year. The largest investors, it turns out, are as surprised by this as anyone.

Dollar figures have become astronomical, with the world’s major financial players amassing capital specifically to invest in green energy, emissions reduction and other sustainable technologies. Each week, a parade of companies from all industries announces targets for net-zero carbon emissions in the coming decades.

But early in the COVID-19 pandemic, few of those making investment decisions expected things to turn out this way. In a new survey of Canadian institutional investors, 93 per cent said they were surprised, both by how quickly markets recovered and how much of a role environmental and other previously “soft” factors have played in the market rally.

That is raising questions about whether there’s an ESG bubble forming – similar to previous tech and cannabis rushes in Canada that deflated quicker than they ran up.

“From those that we spoke to, I don’t think they see it as a bubble. They see this as a very significant tipping point,” said Milla Craig, president of Millani, the Montreal-based ESG advisory firm that conducted the survey. Among participants were Caisse de dépôt et placement du Québec, RBC Global Asset Management, Fiera Capital Corp., Desjardins Global Asset Management and Letko Brosseau & Associates Inc. Collectively, those surveyed control $2.3-trillion in assets.

Much of investing is about risk management, and COVID unleashed new and massive business risks as economies struggled to deal with lockdowns, the loss of consumer demand in many industries and unprecedented reliance on the health care sector. All of this puts the spotlight on the “S” part of the ESG triptych. But, it only served as a reminder that climate change poses long-term risks to businesses that must be quantified and dealt with, Ms. Craig said.

“It’s exposed the vulnerabilities, both in society and in portfolios,” she said. Taking those vulnerabilities into account is part of the fiduciary duty institutional investors shoulder.

Meanwhile, diversity and inclusion were widely cited as key to boosting the values of their organizations, and those of the companies in which they invest.

Globally, money flows into sustainable funds topped US$150-billion in the fourth quarter of 2020, according to Morningstar. That’s nearly triple the amount in the same period a year earlier. Most has gone into European funds, but the recent period saw the biggest growth of such fundraising in the United States and the rest of the world.

In Canada, several investors, from pension funds to private equity players, made investments in renewable energy and set up funds to seek new target for investment. They are certainly demanding attention to the issues in traditional energy. Last week, Brookfield Infrastructure Partners made a point of touting its ability to bring ESG improvements to bear when it made an unsolicited $5.7-billion bid for Calgary-based Inter Pipeline Ltd.

Investors now see enforcement of ESG disclosure and reporting standards, similar to accounting rules, as the next step. The survey revealed that three-quarters of institutional investors expect mandatory disclosures in Canada.

Certainly, the push is on. Late last year, the country’s largest pension funds issued a call for corporations to adopt a standardized set of criteria for assessing, for example, how measures to reduce carbon emissions would affect their long-term profitability.

In its recent report, the Ontario Capital Markets Modernization Task Force said companies should disclose all material environmental information. The task force recommended corporations be mandated to adhere to the most stringent standard – the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.

Investors do not expect the measures to become compulsory in 2021, but they do expect more movement in that direction, according to the survey. But as the past year has shown, things can move quickly, and that’s important for company leaders to keep in mind as they seek to retain access to institutional money.

Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. Reach him at jeffjones@globeandmail.com.