November 26, 2022

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Built General Tough

What trends for ESG products?

“We are currently seeing a careful review of how we manage ESG risks. And I believe that as ESG integration continues to be widely adopted, we will see increased interest from regulators and investors in the authenticity and outcomes of how managers take these into account. factors in their process. “

Impact investing is the most exciting product trend right now, said Aaron White. CIBC and other companies are working to develop frameworks to measure the results of investments and link them to impact, he said. The strategies will monitor and report on non-financial impacts to help investors align their investment goals with their values.

“While there are a limited number of investment strategies in this area today, as research and investment processes evolve, I expect this to be the next frontier of investing. ESG ”, he assured.

Another trend is the divestment in fossil fuels. Although there is debate on whether divestment is a better approach to influencing the energy transition than engaging with businesses, investors are “focusing on divestment,” he noted.

“There are two key drivers to this theme. First, a value alignment goal where investors believe divestment advances their energy transition goals, said Aaron White. And second, an investment thesis where investors believe the traditional energy sector cannot deliver growth as the transition becomes a bigger global goal. “

Meanwhile, the oil companies are looking to demonstrate their ability to change. On Wednesday, some of Canada’s largest producers announced a joint strategy to achieve net zero greenhouse gas emissions by 2050. The plan calls for the construction of a carbon sequestration facility in Cold Lake, Alta.

While many investors are considering divestment, Aaron White has found, others are trying to reduce emissions in their portfolios.

“The challenge with these strategies is that the data right now is not perfect,” he said. However, as disclosures and standards reporting evolve, I think we’ll start to see an increase in emissions-based solutions. “

One of the potential solutions is carbon offsetting, which some companies and asset managers see as a way to achieve net zero liabilities faster.

“As we work to achieve net zero in 2050, offsets will certainly play a role. However, they shouldn’t be the starting point, Aaron White said. We need to reduce emissions first through operations and a true energy transition – perhaps the use of technologies like carbon capture can play an important role – and then use offsets as a solution to last mile type, reducing the inevitable final emissions. “

Sustainable fixed income products are also on the rise. In Canada, growth has been limited to green bonds, which finance environmental projects. In Europe, according to Aaron White, sustainability bonds – which embed sustainable goals into the bond convention and can impose penalties on the issuer – are becoming more popular.

“All of these bonds generally trade at a slight premium over the issuer’s traditional debt, which encourages the company to make these commitments in terms of cost of capital,” he noted. I think we’re going to see an acceleration in issuance and in doing so, an increasing number of investment solutions for investors. “

This article is part of the AdvisorToGo program, developed by CIBC. It was written without the contribution of the sponsor.