"We think investors are going to need someone they can turn to when they want to incorporate ESG into their portfolio," said Pat Chiefalo, head of ETFs and indexed strategies at Invesco.Christopher Katsarov/The Globe and Mail
Asset manager Invesco Canada Ltd. is partnering with ethical funds pioneer NEI Investments to boost its socially responsible investing lineup of exchange-traded funds, an area that has seen a wave of new products emerge as fund companies compete for investors who want greener options.
Invesco Canada Ltd. – a subsidiary of U.S.-based global asset manager Invesco Ltd. – announced on Thursday it has entered into a strategic agreement with NEI Investments to help enhance its existing environmental, social and governance index ETFs, as well as develop new ESG ETFs that will begin to launch in 2023.
A subsidiary of Aviso Wealth, NEI Investments was one of the first companies to offer socially responsible investments more than 35 years ago through actively managed mutual funds. The new partnership will be NEI’s first entrance into ETFs.
In recent years, ESG-themed ETFs have been growing in both the number of products and overall assets in Canada, surpassing $10-billion in assets under management in 127 ETFs, according to research by National Bank Financial.
But ESG ETF assets still remain comparatively small in Canada, making up about 3.4 per cent of the total of $323-billion in ETFs in Canada. That leaves a lot of room for opportunity, said Invesco Canada’s head of ETFs, Pat Chiefalo.
With about $550-million in total ESG assets in Canada, Invesco’s footprint is less than 10 per cent of the overall ESG market. Last month, the Invesco S&P 500 ESG index ETF had more than $44-million in sales. According to a National Bank report, the Invesco S&P 500 ESG fund has been steadily picking up assets since May – pulling in about $106-million.
“ESG is a market in flux,” Mr. Chiefalo said in an interview with The Globe and Mail. “It’s early days but it’s evolving and we think investors are going to need someone they can turn to when they want to incorporate ESG into their portfolio – not just for today but for the next five to 10 years and onwards.”
Through the partnership, NEI will take on the role as subadviser to Invesco’s 11 current ESG ETFs, including the Invesco S&P 500 ESG index ETF. NEI will also provide advice on proxy voting and corporate engagement, as well as provide an additional layer of oversight on the ETFs’ underlying stocks.
“We want to ensure that the constituents are meeting the criteria of the ESG methodology because we want to avoid new things coming into market that no one was aware of,” Mr. Chiefalo said.
But the competition for ESG investing is already heating up as other ETF players race to gain market share during a time Canadian investors are starting to pay closer attention to the impact their money has on the environment.
Both Bank of Montreal’s asset management arm and Mackenzie Investments have the most assets in ESG ETFs, with about $2.3-billion each – or 23 per cent of the market – while National Bank Investments manages about $2-billion.
While investment flows into ESG ETFs slowed down with recent equity market turmoil, a wave of ESG ETFs have launched in Canada – with more than 15 new ESG ETFs that began trading last month – including new funds from CI Financial Inc., Emerge Canada Inc. and Harvest Portfolios Group.
And it isn’t slowing down, said National Bank Financial ETF analyst Linda Ma.
“We believe ESG is here to stay for the long term, and in fact this year we saw the most ESG ETF launches in Canada in history with 43 new funds to date,” Ms. Ma said.
Aviso Wealth’s senior vice-president of asset management and head of NEI Investments, Tim Prescott, said the company’s long tenure in the ESG space allows Invesco to tap into a rare expertise that includes guidance into possible future areas of growth, such as impact investing and helping advisers sift through what is true sustainable investing.
Regulatory bodies in Canada, the United States, Europe and Australia have been advocating for new guidelines on the marketing and disclosure on ESG-related investment funds in hopes of clamping down on claims against “greenwashing” – a term used to describe misleading investors about the environmental benefits of a product.
“We were a leader in a space where the space wasn’t really recognized before and what is required for the space to grow is about having more mainstream participants,” Mr. Prescott said.
“But as relatively new entrants come into the ESG space, I think that’s where the concerns from regulators come in around what is responsible investing. And as more assets start to get invested in this space, I think you’re going to see the bar be raised for what actually qualifies as sustainable investing.”
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