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Canada has a chance to be a world leader in sustainable finance. Are we ambitious enough to seize the opportunity?
Written by Jennifer Reynolds
When it comes to the landscape of environmental, social, and governance (ESG) factors, investors are often challenged to define and measure them, and more importantly, determine how they should, or should not, impact their investment decisions. Too often, investing with a lens of sustainable economic development has been put into buckets like impact investing or social investing with a perceived implication that it is akin to a charitable donation and not an investment decision based on sound financial analysis with the goal of generating returns. However, today there is a global shift taking place which is taking ESG investing out of its niche category and moving it mainstream in both institutional and personal investment portfolios.
The commitment made by countries around the world to the 21st Annual Conference of the Parties (COP 21) and the increasingly obvious physical evidence in the form of severe weather, floods and forest fires have propelled climate change toward the top of the investor agenda. The risk of doing nothing has become a critical part of investment analysis. Not to mention, investors are recognizing the significant opportunity sustainable investment represents for the global economy. Trillions of dollars will be required to meet the goals set in the Paris Accord with respect to limiting global warming to under two percent. As a result, the global demand for cleaner economic growth is providing an opportunity for financial centres to play a leading role in unlocking the potential of sustainable development.
Capital will need to be mobilized into areas like infrastructure, technology (to allow for cleaner heavy industry and energy production), and building retrofits (for energy efficiency and climate adaption.) Many industries that support the Canadian economy are carbon intensive which means Canada will require considerable investment and a pragmatic national strategy to make the successful transition to a lower carbon economy.
While Toronto, and – more broadly – Canada has achieved significant milestones in green bond issuance, sustainable assets under management and new products and services addressing the growing sustainable finance market, to date, we have not developed a coordinated strategy for our financial sector to capitalize on this economic opportunity.
As North America’s second largest financial centre, Toronto is well positioned to develop and expand expertise and talent in sustainable finance. Other global financial centres have recognized the opportunity and have developed strategies to capitalize on the growth in the demand for sustainable finance alternatives from businesses, government and investors.
Global green bond issuance alone has more than tripled in the last 3 years to $163 billion in 2017. Global assets under management with ESG strategies has risen to $23 trillion. Sustainable finance is here to stay, and could represent a tremendous potential for Canada’s financial sector and the economy more broadly. There is an opportunity at hand to build a hub of expertise in financing the transition to a lower carbon economy. Expertise that could not only serve our domestic market, but also international markets dealing with similar economic transitions. The growing demand for cleaner more sustainable growth is evident, the question for Canada is what role will our financial sector play in meeting that demand.
Do we have the ambition to lead on the path to a lower carbon, more sustainable economy and to capitalize on the opportunity other global financial centres are in the midst of seizing?
Jennifer Reynolds is the President and CEO of Toronto Finance International (TFI) a public-private partnership whose mission is to drive growth and competitiveness of Toronto’s financial services industry.