Responsible investment and carbon footprint: the future is now!

Over the past few years, responsible investment has become very important to investors. According to a survey of European institutions (pension funds, foundations, investment managers, etc.) conducted by Ernst & Young in 2015, close to 80% of investors now take into account the non-financial performance, including their impacts on the planet, of businesses they are investing in. This percentage has risen from 65% in 2014. Throughout the world, a number of initiatives have been introduced to make investors and businesses aware of the effect of environmental, social and governance factors (ESG factors) on investments. In late 2015, the Paris Agreement sent a clear message calling for change in relation to environmental issues and our dependence on fossil energy.

The Paris Agreement was signed by 196 countries during the 2015 Climate Change Conference. Under this agreement, the countries involved are committed to limiting the global temperature increase to a maximum of 2˚C above pre-industrial levels and making every effort to hold the temperature increase to 1.5˚C above pre-industrial levels. They are also expected to reach the net zero greenhouse gas emissions target by 2050. To achieve these goals, the countries must develop plans to be implemented in 2020. The media attention given to the Paris Agreement raised the collective awareness around climate change. The event did a great deal to highlight one of the key elements of responsible investment, i.e., activating or reactivating the drive to take action in the face of these environmental issues that challenge all of us in one way or another.

Many investors are not waiting until 2020 to take action, and initiatives are already underway. These initiatives include:

• United Nations Principles for Responsible Investment (UNPRI): Spearheaded by the United Nations (UN), the UNPRI is a UN initiative launched in 2006 that first included 20 organizations representing 12 countries. Today, 1400 organizations representing pension funds, foundations, institutional investment managers, consultants and other entities from the investment community are signatories to the UNPRI. The UNPRI sets out six principles¹ that signatories undertake to respect in an effort to improve investment practices, including the carbon footprint.
• United Nations Environment Programme Finance Initiative (UNEP FI): More than 200 banks, investment managers and insurance companies are signatories to the UNEP FI, an initiative that was founded in 1992. Its goal is to make a structural change in the financial that will allow for the creation of a sustainable world for future generations.
• Portfolio Decarbonization Coalition: This initiative was jointly launched by the UNEP FI and the UN’s environment program and now has over 25 members and US$600 billion in assets. The objectives of this coalition are to encourage investors to disclose the carbon footprint of their investments and to improve practices related to measuring the carbon footprint of different portfolios.
• Montreal Carbon Pledge: This initiative was launched in 2014 at the PRI in Person meeting in Montreal and now consists of more than 120 investors and over US$10 trillion in assets. It is supported by the UNPRI and the Portfolio Decarbonization Coalition. By signing the pledge, investors are making a commitment to measure and disclose the carbon footprint of their assets at least once a year. Several service providers such as Bloomberg, MSCI ESG and Sustainalytics are now offering carbon footprint measuring services.

Several market regulators are working to assess or implement significant changes concerning the carbon footprint. For example:

• France: Section 173 of France’s energy transition law created in December 2015 stipulate that all institutional asset holders (insurance companies, portfolio managers, pension funds, etc.) must disclose the carbon footprint of their portfolios.
• Singapore: The Singapore Stock Exchange (over US$900 billion in market capitalization) wants to create regulations requiring companies listed on the stock exchange to disclose their greenhouse gas emissions (approximately 53% of companies have already disclosed their emissions).

Closer to home, Ontario has taken an important step by requiring registered pension plans to indicate in their statement of investment policy and procedures, as of January 1, 2016, whether or not they consider ESG factors, and, if so, how they are addressed in the plan’s investment strategy.

With the Paris Agreement and the various initiatives of many key players in the investment market, major changes can be expected in the coming years. Pension fund trustees and other institutional investors will be more and more inclined to review their investment structure and their practices with respect to ESG factors.

Normandin Beaudry is committed to ensuring responsible investment, advancing investment practices in this regard and creating a greener world for future generations. To honour these commitments and achieve these goals, Normandin Beaudry is proud to have become a signatory to the Principles for Responsible Investment (PRI) on January 1, 2016. Among other things, Normandin Beaudry will be systematically including ESG factors in the reflection process when analyzing and monitoring investment managers.

All of these changes are bound to have an impact on the portfolios of institutional investors, in particular for companies from the Energy, Materials and Utilities sectors.

To continue this important reflection for investors, we invite you to take part in our 20^th Revue annuelle des gestionnaires de placement   (February 18, 2016). At this event, we will discuss, among various current topics, the impacts and challenges of the greenhouse gas reduction targets for institutional investors.

¹  Principles for Responsible Investment: https://www.unpri.org/pri/what-are-the-principles-for-responsible-investment
²  Measuring the carbon footprint: 

Please feel free to contact us for additional information.