Seven investment managers have scored mandates to manage a total of $104.5-million for a group of institutional investors after impressing judges with strategies for setting up portfolios offering both financial gains and credibility in environmental, social and governance measures.
The managers finished at the top of the Great Canadian ESG Championship, a competition sponsored by Canadian charitable foundations, endowments and private trusts to help demystify sustainable investing using real money.
The winners range from small shops to big names in the sector: AlphaFixe Capital, Rally Assets, Jarislowsky Fraser, Schroders, UBS, Manulife and PH&N Institutional. They emerged victorious out of an initial field of 60 hopefuls.
For entrants, it wasn’t just a matter of submitting marketing materials to the judging panel. The managers had to meet high financial and sustainability standards while also taking into account the investment strategies of the individual sponsors, organizers said.
After being shortlisted last spring, 11 finalists gave in-person presentations of their strategies to expert judges: Andrea Moffat, vice-president of the Ivey Foundation; Barbara Zvan, chief executive officer of University Pension Plan; and Daniel Simard, management adviser with Aequo Shareholder Engagement Services Inc.
The aim was to highlight best practices in a field that can be confusing, even for pros, because of numerous different standards for measuring everything from climate risks, to worker safety, to equity and diversity.
“Obviously ESG has gotten a lot of ink in the last year or so, and investment managers in Canada have really taken notice, from the large institutional managers to the really small. That was a really important takeaway – that the investment management industry really cares about ESG,” said Éric St-Pierre, executive director of the Trottier Family Foundation and organizer of the competition.
The other investors are the Concordia University Foundation, the Skagit Environmental Endowment Commission, the Foundation of Greater Montreal, the Sitka Foundation, the Consecon Foundation, the McConnell Foundation and two private trusts.
The competition began in March. Mr. St-Pierre had floated the idea amid a flood of ESG-themed investment pitches directed at the Trottier Foundation, which has $200-million under management. He, like investors around the world, became concerned about the risks of greenwashing – exaggerated or false environmental claims.
“When we started this as investors, it seemed kind of like the Wild West,” he said. “But we’re noticing that there are a lot a lot of options to choose from, and some surprisingly strong options as well.”
As the competition played out, the ESG world was rocked by enforcement actions as regulators clamped down on deceptive marketing. This year, the U.S. Securities and Exchange Commission fined BNY Mellon US$1.5-million for misstatements and omissions about ESG factors that went into investment decisions for some of its mutual funds. German police raided the Frankfurt offices of Deutsche Bank AG’s asset management division, DWS, in connection with accusations of investment fraud related to greenwashing.
The regulatory crackdowns hit the headlines as the competing investment managers were giving their presentations, said Milla Craig, founder of the Montreal-based consultancy Millani, the contest’s ESG validator. “A lot of organizations have now had to take a step back and make sure to do a good validation that what they’re saying is what they’re doing,” Ms. Craig said.
Early in the process, it was clear from fuzzy details if a firm’s marketing department had put together the proposal rather than an ESG-savvy investment team, she said.
The winners have different investment strategies but all employ the latest definitions and labelling for ESG measuring, disclosure and target-setting being used in Canada and globally, Ms. Craig said. Some went farther than others on some metrics, which shows “leapfrogging” is taking place among investment managers on ESG, she said.
One common thread among the top managers was that they are employing many of the ESG factors they seek out in investments within their own businesses. “That’s the shift that we’re seeing in the marketplace – it’s walking the talk on a number of these elements,” Ms. Craig said.
Now comes the trickiest part of all for the championship victors – meeting sustainability and financial goals on behalf of the investors, Mr. St-Pierre said. “Especially with the market today – we’re possibly headed to a recession, so it’s going to be tough for the sector in general.”
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