As interest in sustainable investing grows and products flood the market to meet demand, advisors must outline a strategy to target the specific outcomes that are important to a client, CIBC’s sustainable investment head says.
Sustainable investing is “a great step forward,” allowing advisors to align investments with client values and “contribute to a client’s non-financial goals alongside their financial objectives,” said Aaron White, vice-president of sustainable investments with CIBC Asset Management, in a recent interview. “However, it does create uncertainty.”
While progress has been made to establish some regulatory guidance on environmental, social and governance (ESG) investments—with the EU Sustainable Finance Disclosure Regulation, the CFA Institute’s voluntary fund disclosures and recommendations from global regulators—“we’re not yet there in Canada,” said White.
Last month, the Canadian Securities Administrators proposed mandatory disclosure requirements for issuers, but there are no regulatory standards in the fund space.
And because there are no standardized definitions for advisors and investors to navigate, White said “transparency is vital to the due diligence process.”
“It is important for advisors and investors to understand exactly what they’re getting from an ESG strategy to ensure that the process and implementation meets the needs of the client,” he said.
White said advisors should be able to publicly access the framework that establishes the exclusions and the ESG process that underpins an investment strategy; understand a firm’s responsible investing policies and reporting; and be able to evaluate the authenticity of the ESG implementation within an investment team.
White said advisors should also seek robust reporting related to the ESG characteristics of the strategies they invest in and encourage firms to track the “non-financial progress of their investments.”
As for investors, White recommends looking at the industry organizations a firm participates in.
For example, if diversity and inclusion is important to a client, they should seek out firms that participate in collaborations like the 30% Club, which promotes gender diversity on boards and senior management, and have signed the Responsible Investing Association (RIA) of Canada’s statement on diversity inclusion.
If climate is a consideration, White suggested looking at firms participating in Climate Engagement Canada, Climate Action 100+, and the RIA’s statement on climate, to name a few.
“The willingness to participate in these collaborations sets the tone for the culture at the firm and sets priorities for not just how they engage with investee companies, but also how they consider these social and environmental challenges as part of their investment process,” said White.
Investors should also analyze annual sustainability and stewardship reporting to ensure that outcomes are matched with intent.
“The most important consideration for advisors is to understand what outcomes are important to your client,” White said. Only then is it possible to seek out ESG strategies that align with their values and intent.
“Advisors should focus on understanding their clients deeper than what a traditional financial planning discovery session is able to uncover and establish what is important to your client and their family,” White said.
This article is part of the AdvisorToGo program, powered by CIBC. It was written without input from the sponsor.