'Wild west': ESG disclosures leaving investors baffled
BNN Bloomberg
Following a year that saw severe weather wreak havoc on Canada’s supply chains and as COVID-19 continues to impact Canadians’ health and work, corporations and investors are diverting serious dollars toward environmental, social and governance (ESG) initiatives -- and securities regulators are taking notice.
Following a year that saw severe weather wreak havoc on Canada’s supply chains and as COVID-19 continues to impact Canadians’ health and work, corporations and investors are diverting serious dollars toward environmental, social and governance (ESG) initiatives -- and securities regulators are taking notice.
“There’s this massive groundswell of investment into the space,” said Sarah Keyes, CEO of ESG Global Advisors. “It’s moved quickly, and it’s become like a wild west.”
According to the Responsible Investment Association (RIA), the value of “sustainable funds” in Canada reached $18 billion at the end of the first quarter in 2021, representing a 160 per cent increase from 2020.
ESG investing has become mainstream and concern over “greenwashing” – when a fund’s disclosure or marketing can intentionally or inadvertently mislead investors about the ESG-related aspects of a fund – has prompted the Canadian Securities Administrators (CSA) to publish guidance for fund managers on their disclosure practices. They are to include specifics such as the fund’s name, type, strategy, proxy voting procedures, risks, sales communications and terminology.
“The challenge with guidance though, is that it’s only guidance,” said Keyes who advises institutional and retail investors on ESG reporting. She warns that while the CSA guidance may help fund managers improve disclosures, it does not impose new obligations and is not enforceable.
Dan Chacko, director of sustainable investing and strategy with Montreal-based impact investment firm Clear Skies Investment Management, said investors struggle in selecting the right framework to measure non-financial performance, so they often rely on ESG scores derived by third parties like MSCI, Sustainalytics, and S&P.
