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95% of Canadian institutional investors shunned ESG during COVID-19: survey

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While Ottawa has called COVID-19 an opportunity to build a greener, more equitable and inclusive economy, a new survey suggests most Canadian institutional investors are focusing less on environmental, social and governance (ESG) factors during the pandemic.

The latest Edelman Trust Barometer found 95 per cent of Canadian institutional investor respondents see their firm putting less emphasis on ESG as an investment criteria, and 93 per cent reported the companies they invest in are doing the same. Those figures drop to 83 per cent and 81 per cent, respectively, across respondents from six global markets including Canada.

“Canada historically is more conservative than the global mean,” said Nina Godard, national financial communications lead at Edelman Canada. “My sense is the pullback is really based on pragmatism.”

Edelman, a Chicago-based public relations and marketing firm, surveyed 600 institutional investors across Canada, the United States, the United Kingdom, Germany, Japan and the Netherlands. One hundred responses were collected in each country between Sept. 3 and Oct. 9.

The grim snapshot of ESG is at odds with messaging from the federal government amid the pandemic. In her speech from the throne in August, Finance Minister and Deputy Prime Minister Chrystia Freeland said, “I think all Canadians understand that the restart of our economy needs to be green. It also needs to be equitable. It needs to be inclusive, and we need to focus very much on jobs and growth.”

The ESG theme has received plenty of pandemic-era attention in Canada. On Tuesday, TC Energy (TRP.TO)(TRP) announced a deal solidifying the first Indigenous ownership of a major North American energy pipeline. On Monday, the Bank of Canada and OSFI announced a new pilot project aimed at better understanding the risk of transitioning to a low-carbon economy. Last month, the government announced $10 billion in spending for a slate of infrastructure priorities including clean power, building retrofits, and zero-emissions public transportation. Even the $2.45 billion federal aid package for workers in the oil and gas sector announced in April was largely earmarked for cleaning up abandoned wells and cutting emissions.

The COVID-19 pandemic has been a surprise test of the relatively new investment theme, with companies under public pressure to live up to their stated ESG values in the face of severe financial constraints. Of those surveyed, 96 per cent said companies with strong ESG performance are more resilient in a crisis.

Godard sees the disconnect between institutional investors and other market participants as temporary, pointing to survey results that strongly suggest ESG will not be a casualty of COVID-19 within the institutional investment community.

To that point, 96 per cent of Canadian respondents said their firm monitors ESG indicators such as carbon emissions reduction and diversity targets to inform investment decisions on an ongoing basis. As a recovery from COVID-19 emerges, 95 per cent of said they expect their firm to increase prioritization of ESG as an investment criteria. The vast majority, 95 per cent, said companies with strong ESG performance merit a premium to their share price, and represent better opportunities for long-term returns. Profitable companies were found to be under added pressure to deliver on ESG priorities, with 84 per cent agreeing they have greater responsibility than underperforming rivals.

“Institutional investors are still setting quite a high bar in terms of ESG,” Godard said.

“What we are seeing is a temporary pause as they are considering what’s important during this time. But if we look at the data, it is telling us that ESG is still really important for them. They are expecting to intensify their focus on this, and they expect the companies they invest in to be doing the same.”

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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