A path to investing in saving the planet

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There’s an age-old mindset that profit and the planet are at odds. But that’s quickly changing.

Sustainable investing has exploded into the mainstream in recent years, as investors look to make a positive change in the world – while seeking financial returns. Research from Bloomberg shows that global ESG assets are on track to exceed US$53-trillion by 2025, representing more than one third of the US$140.5-trillion in projected total assets under management.

“Climate change is often at the core of environmental, social and governance (ESG) priorities, as there is overwhelming evidence of its impact on the planet and the economy,” says Monika Freyman, vice-president, sustainable investing at Addenda Capital, one of Canada’s largest multi-asset investment firms with more than $40-billion under management. “Long-term investors understand that mitigating and managing climate change risks and opportunities is in the best interest of investment portfolios and long-term financial outcomes.”

A climate-transition approach to investing

Addenda Capital, which is co-owned by Co-operators Financial Services and by employees, is a leader in sustainable investing that takes a climate-transition approach to ESG. The firm invests in companies that have goals to meet emissions reduction targets, and actively engages them in their efforts.

“We believe investment managers have a unique opportunity to use capital to make a real difference in the climate transition,” Freyman says. “Our approach is to foster meaningful engagement with companies to reduce emissions, while earning compelling risk-adjusted returns for clients.”

While all of Addenda’s investment strategies consider ESG factors, the firm also offers specific sustainable and impact solutions. These include: an Impact Fixed Income Fund, designed to generate positive social and environmental impact while seeking income and long-term capital growth; and a Fossil Fuel Free Global Equity Fund, which uses an exclusionary approach based on companies’ source of revenues while aiming to generate compelling returns.

Most recently, Addenda launched its Climate Transition Equity Funds (offered in Canadian and International Equities), which invest in public companies that align with Addenda’s drive for a net-zero emissions society. “These funds look for companies that are signalling they want to be part of the transition to a lower carbon world,” Freyman says.

Addenda’s investment approach includes four steps:

• Identifying qualified companies committed to climate transition

• Actively managing a concentrated portfolio that carefully tracks carbon emissions over time

• Strengthening Addenda’s screening criteria and carbon footprint goals in phases

• Engaging with portfolio companies to encourage continual progress on climate transition goals

How does Addenda determine if a company qualifies? The firm looks for answers to questions such as: Is there board oversight on climate change? Does the company have climate change in its existing business strategy? What climate change policies are in place? Is it reporting on greenhouse gas emissions along with having credible reduction targets?

“Over time, our expectations of companies increase, as we assess their ability to meet science-based greenhouse gas reduction targets,” Freyman says.

For the greener good: Taking the lead in sustainable investing

Building on the commitment to solve climate change

Addenda also plays an active role in supporting continual improvement in the market on sustainable investing practices. This includes its work on supporting standardization and improved transparency on climate change within the corporate and investment communities. Recognizing the value that these disclosures provide to improving financial market performance, Addenda adopted the Task Force on Climate-related Financial Disclosures (TCFD) recommendations in 2018.

The recommendations are designed to help companies improve and increase reporting of climate-related financial information. The framework includes governance, strategy, risk management, and targets and metrics for tracking successes.

“The guidelines allow firms to identify climate-related risks and opportunities, provide strong governance on reporting, and enhance risk management and strategic planning,” Freyman says.

In 2021, Addenda joined the Net Zero Asset Managers initiative (NZAM), a group of global asset managers that support the goal of net-zero greenhouse gas emissions by 2050 or sooner.

For Addenda, another important piece in solving the climate puzzle is engaging a larger set of stakeholders beyond companies.

“Finding solutions also requires engaging with policymakers and economic leaders especially when it comes to increasing transparency on climate reporting and plans,” Freyman says. “Climate change is a complex issue, investors of course won’t solve it alone, but we have our part to play and ultimately we all have to work together to create a better planet and a sustainable future.”

For more information, visit Addenda Capital.

Advertising feature produced by Globe Content Studio and Addenda Capital. The Globe’s editorial department was not involved.