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Responsible Investing Will Be Replaced by ‘Investing With No Prefixes’

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Barry Critchley: Looking at environmental, social and governance issues will be the way things are done

A quarter of a century back, forming your own Canadian-based research organization focused on sustainable investing was probably regarded as an unusual decision.

But it’s turned out to be a prescient move for Michael Jantzi, now chief executive of Sustainalytics Inc., a global investment research organization with offices in 14 cities around the world and more than 450 clients. And, since July, it has a new major shareholder, with Morningstar owning 40 per cent.

“It’s an entirely different world than it was. There has been lots of change as mainstream investors have embraced it in a meaningful way,” said Jantzi, who will be key speaker at Monday’s launch of Responsible Investment Week and who, as part of his earlier work, developed the Canadian Social Investment Database.

As the title suggests, the event runs for a week and focuses on education and awareness about responsible investment. (The 2017 version is the fourth by the Responsible Industry Association, the industry body.) The idea is to promote learning about environmental, social and corporate governance issues that affect investments.

It’s a message that’s increasingly being taken up by institutional investors. For instance, a recent report on the 2017 proxy season prepared by the proxy advisory firm D.F. King noted there was record number of filings regarding environmental and social proposals. The main themes included climate change, sustainability disclosure, gender pay equity and board diversity.

Those proposals are occurring as investors are managing more mandates with more assets on a sustainable investment basis.

And there could be more as surveys repeatedly show that investors, particularly retail, want to invest on a sustainable basis, but lack knowledge. Dustyn Lanz, RIA’s incoming CEO refers to “the awareness gap.” Jantzi noted the financial industry “is there to serve the client and the client seems to be asking for such (products).”

Jantzi said “it’s very clear” environmental and social issues are “risks and opportunities investors want and need to know about.” And those risks have to be integrated into investors’ decision-making processes.

While the information is needed, there are some gaps in disclosure, gaps that become more obvious when the Canadian landscape is compared with what happens elsewhere.

In other countries, largely in Europe, Jantzi said a regulatory framework has been put in place where issuers disclose to investors the “real risks” of matters including climate change and supply change management. “This is the type of (material) we need in Canada. We need to ensure that there’s robust disclosure,” he said, noting in some cases the rules exist but are not enforced.

So what would be the benefits of such disclosure and enforcement? If a level playing were created, there would be no perceived competitive disadvantage between issuers, a situation that would allow investors to make “more informed decisions,” he said.

Jantzi also brings a novel perspective to fiduciary duty, the obligation for an investment advisor to act in the client’s best interest. The obligation, not uniform across the various product providers, is normally viewed in financial returns — the best return for a given level of risk – but Jantzi argues that it needs to be broadened “as part of an informed investment strategy. I would like to see some clarification from the regulators.”

Asked for his thoughts on what responsible investing will look like in a decade, Jantzi said, “it will be called investing with no prefixes. Looking at environmental, social and governance issues will be the way that things are done. Investors will be looking at it because it’s important,” he said. “That’s where we are headed.”

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