ESG Investing in Canada and the need for a disclosure standardization.

September 9, 2021
By CSE

 

Canada is slowly moving towards developing a green taxonomy for the local market. However, that nonsolid frame of industry standards and regulations is a main source of concern when it comes to Responsible Investing. Although there is a significant rise in integrating ESG in business strategies and launching of ESG products, there are questions whether there is authenticity on the approach that the firms follow.

Data and Disclosure

In the Canadian market, Investment managers mostly find themselves in confusion within the responsible investing landscape since there is no standardization of an ESG disclosure process. While following an investment process, most asset managers end up applying a procedure based on proprietorship due to the lack of specific information that would allow them to make decisions in confidence and invest in a responsible yet transparent manner.

Greenwashing

One major concern that has surfaced during the past couple of years in the investment industry, according to the head of Canada’s Responsible Investment Association (RIA) Dustyn Lanz, is greenwashing and its effects. Greenwashing is also a result of responsible investment complexity.  Considering the urgency to tackle climate change and use of fossil fuels, organizations have accelerated their process of green credentials to ensure they will profit from the ongoing need for environmental products. To this end, an increased scrutiny has been taking place to address the “greenwashing” challenge. Canadian investor managers need to be more careful while measuring and managing risk but that is not always achievable due to the lack of an easily accessible classification system.

At this point, the RI industry is rather complex and fragmented. To avoid greenwashing and any misunderstandings, it is suggested a convergence of common contexts and definitions and the development of an ESG disclosure standard for investment products in the Canadian market.

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