Climate change presents investment risk and opportunity. A recent study shows that almost all industries are threatened by the effects of climate change, directly or indirectly. According to the Canadian Climate Institute, the costs of climate-related damage is estimated to slow Canada’s economic growth in 2025 by $25 billion annually, wiping out half of the projected GDP growth in 2022.¹

In another survey, opportunities related to climate change exceeded risks. Over 200 of the world’s largest companies reported almost US$1 trillion at risk from climate impacts, and also reported opportunities of US$2.1 trillion.² Therefore, in the coming years and decades, there are significant risks and opportunities for investors.

Mackenzie is addressing climate change in a number of ways. We have become one of Canada’s largest providers of sustainable funds by launching new investment funds designed to:

• Attract capital to companies that are solving the world’s climate change challenge, and
• Invest in companies that are making real progress on reducing their carbon footprint

We are also taking collaborative action. Mackenzie is a member of Climate Action 100+ which is an initiative by 400 firms ($35 trillion AUM) to ensure the world’s 100 largest corporate greenhouse gas emitters take necessary action on climate change. Mackenzie is also a member of Net Zero Asset Managers Initiative in which 300 members ($59 trillion AUM) have committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner by engaging with the thousands of companies in which they invest.

There are three ways for companies to get to Net Zero.

1. First, they reduce their energy use as much as possible.
2. Then, they switch as much of their energy requirement as possible to a renewable energy source, such as solar or wind.
3. Lastly, for the unavoidable energy use that generates carbon, the company can purchase “carbon offsets.”

Carbon offset providers use the money to fund projects that reduce GHG emissions or increase carbon storage to compensate for emissions that occur elsewhere. Some examples of projects include reforestation, building renewable energy, carbon-storing agricultural practices, and waste and landfill management. 

It already is. According to a BloombergNEF report, new onshore wind and solar projects cost roughly 40% less than coal or gas plants built from scratch—and the gap is widening.³ Generating solar energy costs $37 per MWh (megawatt hour) based on lifetime costs of a new build, and onshore wind costs $40 per MWh, versus gas at $59, and coal at $112, according to research by investment bank Lazard.⁴ In fact, they also found that solar and on-shore wind are even competitive when comparing a new build with the cost of simply running existing coal, nuclear and gas plants, since solar and wind have no marginal operating costs.

The 300+ signatories to the Net Zero Asset Managers Initiative manage US$59 trillion of global assets representing ownership stakes in thousands of companies. The asset managers have committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. That means they will assess their entire book of assets, set targets, and through engagement and collaboration, work to ensure that all of the companies in which they are invested are on track to Net Zero. Asset managers also pledge to create investment products aligned with net zero emissions by 2050 and to facilitate increased investment in climate solutions.

Greenwashing is the misrepresentation of a product, service or investment, making something appear to be more sustainable than it actually is. For investors, the issue of greenwashing is being addressed on three levels:

• Investee company: Before investing, portfolio managers of sustainable funds carry out rigorous due diligence and research to identify which publicly traded companies actually meet their sustainability standards. ESG data is used to verify and compare a company’s actual efforts to other companies in the same industry, with measurements called KPIs (key performance indicators).
• Investment fund manager: Mackenzie has an in-depth Sustainable Investing Policy which details our procedures and commitment to carry out investment management in compliance with the United Nations Principles of Responsible Investment.   
• Regulators: In response to greenwashing concerns in the investment funds industry, the securities regulators in Canada, the U.S., and Europe are working to encourage fulsome and accurate ESG disclosures.

The answer is not so simple. But a growing body of research does demonstrate that sustainable funds on average have achieved comparable or even better financial returns than conventional investments over the long term.⁵ A 2021 review of over 1,000 studies published over 5 years found that 59% showed similar or better performance relative to conventional investment approaches while only 14% found negative results. 

Yes, the vast majority of investment professionals worldwide agree. According to the Responsible Investments Association, 94% of Canadian asset managers use ESG to inform their investment decisions. The top two reasons given were to minimize risk over time, according to 80%, and to improve performance over time, according to 65%.¹

In a global survey of more than 1,100 investment professionals, 89% considered ESG issues in some form as part of their investment approach. More Europeans said ESG is central to their investment approach than North Americans (31% versus 18%). Just 13% of investment professionals said they see ESG as a “passing fad that will eventually go out of fashion.” ²

Here are the top 4 investment solutions:

• ESG-integrated funds consider material ESG risks as part of their investment research, evaluation, or process. Ideal for all investors who want to safeguard funds from pivotal shifts in environmental, social and governance issues.
• Sustainable Core funds are ideal for investors seeking well diversified, broad exposure to a major asset class (e.g., global equities) through investing in companies with positive ESG practices.
• Sustainable Thematic funds are aimed at clients who want to target a specific ESG trend such as women in leadership or renewable energy.
• Sustainable Impact funds are ideal for clients who want a fund that maximizes impact on a specific ESG challenge or opportunity.

Yes, younger generations are more rapidly adopting responsible investing. According to a recent survey of Canadian investors, over 70% of those under age 55 were somewhat or very interested in responsible investing, versus 51% of those aged 55+. Nearly one-half of the youngest investors, aged 18-34, already own responsible investments, along with over one-third of those aged 35-54, compared to just 18% of investors aged 55+. About 45% of investors under age 55 reported they were more likely to choose responsible investments now than they were one year ago, versus 30% of those age 55+.³

The intergenerational transfer of wealth that will see $1 trillion passed down by 2026 will make Millennials Canada’s wealthiest generation ever. ⁴ This means the attitudes, values, beliefs, and risk tolerance of younger investors are likely to shape their investment strategies. And advisors need to be ready. 

In a recent survey of Canadian investors, women were more interested in responsible investing than men, but were less knowledgeable and less likely to be asked by their advisor. About 67% of women were “somewhat” or “very” interested in responsible investing versus 61% of men. More women than men wanted to be informed about responsible investing options (76% versus 69%), but fewer women were asked by their advisor (26% versus 36% of men). Only 25% of women claimed to have “fair” or “a lot” of knowledge on responsible investing versus 34% of men. About 43% of women said they are more likely to choose responsible investing now than a year ago, versus 36% of men.³

With Canadian women controlling $2.2 trillion of financial assets—a number expected to jump to nearly $3.8 trillion over the next decade—advisors need to consider the values and expectations of this segment.⁵

Portfolio managers have traditionally made stock selection decisions based primarily on financial analysis, which helps them compare and value the companies they are considering investing in.

ESG  factors provide added insight into non-financial aspects of a company that may affect its long-term sustainability, financial performance and growth potential.

These ESG factors may include carbon footprint, labour practices, board diversity, executive compensation, and more. Sometimes when ESG analysis reveals that a company is not in line with investor expectations, the portfolio manager will use their ownership stake via voting or dialogue to influence the company to improve its ESG practices.

Portfolio managers can also use ESG analysis to create portfolios that are targeted to specific ESG criteria or investment themes, such as climate change or women in leadership. 

There are several signs that can indicate whether someone is values-driven, that is, their actions reflect their beliefs and principles. In listening to your clients, you can get clues which can help determine whether they may be interested in sustainable investing.

Some simple examples:

• Purchasing behaviour: Does your client buy products that are environmentally friendly? For example, does your client drive a hybrid car or an EV? Or buy free-trade coffee or organic food?
• Support causes: Are they active volunteers or do they donate money to causes?
• Daily actions: Do they use a reusable water bottle vs disposable? Do they bring their lunch in reusable containers? Would they ride a bicycle rather than drive to the corner store?

One final clue would be that, if asked, a truly values-driven person would likely be happy to explain what they do and why, and perhaps even try to convince you to do it as well.