Sustainability journey gains momentum in Canada
Sustainability considerations are gaining significant ground in Canadian financing and investing, though investors in particular still report some obstacles to full engagement.
The Canadian economy is transitioning to a more sustainable model, led by companies that overwhelmingly have begun to pivot their businesses towards activities that take more account of their impacts on the environment and society, according to a Euromoney and HSBC report.
Now in its second year, the Sustainable Finance and Investing Survey 2020 underscores how official support and the appetite of issuers and investors are driving China’s increasingly dynamic sustainable finance market.
Both issuers and investors in Canada are particularly concerned by pollution: many demand more effort be devoted to this problem. But the transition is still at quite an early stage — only 14% of issuers say they have a plan to reach full sustainability. This fundamental change is increasingly reflected in Canada’s capital markets.
Opposition to sustainable finance begins to thaw
Environmental questions in particular are now a core element in issuers’ and investors’ thinking about financing and investing. Issuers are leading this shift, but – in a country whose rich natural resources, cold climate and vast geography are all important economic factors – the more cautious Canadian buyside is moving too.
Despite the Covid-19 pandemic, however, social issues do not yet appear to have gained as much focus. While the pandemic has increased attention on themes such as equality and access to health and education in many markets, as our recent 2020 global survey highlighted, these do not feature strongly in this Canada survey’s responses.
The study also highlights challenges in Canada’s drive towards sustainability. Some 48% of the country’s investors report obstacles to sustainable investing — about half of this group highlight the need to make lengthy commitments. Issuers, however, are more confident: 59% say investing in Canada’s green and sustainable economy is relevant to them, and they will be able to put money to work in these opportunities now or in the future.
Some 48% of Canada's investors report obstacles to sustainable investing
A minority of hold-outs do not factor sustainability into their investment decision-making at all. In contrast, though, Canada’s issuers are almost universally persuaded of the need to engage with sustainability issues. In this survey’s most striking data point, 98% of issuers report that they have begun changing their activities to make them more sustainable. Indeed, no Canadian company in the largest two tiers surveyed (those with revenues of $1bn to $10bn and those with $10bn and higher, which together make up 50% of the sample) has failed to begin this journey.
Almost half of those surveyed (49%) still perceive obstacles to sustainable investing, while 32% do not take sustainability considerations into account in their investment decisionmaking. Despite these substantial proportions, the survey shows the tide turning among Canadian investors. Importantly, 59% of this 32% of investors who do not yet factor in sustainability considerations say they plan to do so.
Areas of focus for Canadian sustainability
The opportunities identified in the survey are headed by energy-efficient buildings, sustainable public transport and agriculture. Some renewable energy sources are also well supported, though issuers and investors are strongly divided over the attractions of each of these. Solar power is issuers’ top pick but bottom of investors’ ranking; the pattern is reversed for hydrogen. One theme that unites the two constituencies, however, is their appetite for guidance on sustainability considerations.
While the topics on which they seek insight vary — issuers seek assistance in marketing their sustainability stories, investors on financial products like social bonds and green deposits — both are strikingly keen for external help. Asked what measures would help to encourage investment in Canada’s green economy, respondents’ top suggestion is government or regulators instructing banks and investment firms to consider sustainability — though issuers support this more widely than investors.
Key findings from the Canada report
- Issuers take the first steps on transition path
- Most investors consider sustainability
- More attention is wanted on pollution, agriculture and transport
- Buildings, transport, solar power excite appetite
- Investors are more inhibited by obstacles than issuers
- Issuers want government to steer investment
- Guidance is required on communication, technology, financial products
- Investors start to demand higher supply chain standards