Sustainable investing is entering a phase where a concrete focus on execution as well as real-world impact and metrics are becoming essential, said Kevin Quinlan, senior director of climate and client strategy at SLC Management, during a session at the Canadian Investment Review’s 2024 Endowment & Foundation Investment Forum in June.
“Going beyond just the branding of products or strategies and really understanding, ‘OK, what are we getting, how are we moving the needle on [sustainability investing]’ and thinking about creative ways to do that.”
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There’s a shift taking place in how climate risk is understood by institutional investors from a far future timeline to a near-present risk reality. While the deployment of renewables and clean energy solutions are at record levels globally, the demand for fossil fuel remains exceedingly high. As greenhouse gas emissions continue increasing, he noted, the likelihood of seeing extreme weather events that present greater risk to investors is also growing.
“Regardless of de-carbonization pathways, there is going to be continued warming based on existing emissions,” he said. “I think that’s something that often times people overlook.”
Institutional investors can’t afford to only pursue climate solutions or decarbonization objectives — both are needed from a sustainable investment perspective, he said.
There has also been a shift towards what he described as positive oriented targets. Instead of reducing allocations, exclusions or even divestments from certain assets, there’s more discussion of goals associated with increasing allocations to renewables or transition projects as clear response goals.
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Also speaking during the session, Catherine Jackman, managing director at SLC Management, said the commitment from about 188 countries around the world offers support to the increasing demand for sustainability investment tactics, adding roughly 88 per cent of the world’s carbon emissions are targeted for reduction.
“This is not a fringe activity, this is the global direction . . . . The reality is it’s not going to be a linear journey, it’s going to be up and down and we acknowledge it’s going to be hard.”
The duty of tracking these figures relates to the work of regulators being tasked with ensuring financial organizations are doing their part to help mitigate the effects of climate change. “We are building the expertise and the tools to deal with this because it’s not just knowing it, it’s being able to measure it.”
Financial entities will be required to identify, disclose and measure climate-related risks through new regulations from the Office of the Superintendent of Financial Institutions Canada. Similarly, Canadian markets are also set to receive new disclosure rules from the Canadian Sustainability Standards Board, which are based on the standards launched this year by the International Sustainability Standards Board. These guidelines will improve market transparency by requiring organizations to disclose on how they are managing their climate-related risks, she added.
“It’s a global phenomenon, it’s not just in Canada, it’s not just the [European Union], it’s global and we’re all very interconnected.”
Read more coverage of the 2024 Endowment & Foundation Investment Forum.