Impact investing is an approach that is increasingly popular among investors seeking to combine financial returns with a positive social or environmental impact. This approach, though relatively recent, has rapidly developed into a pillar of sustainable finance. Here’s a look at this aspect of responsible investing that addresses the social and environmental issues of our time.

The origins of impact investing

Impact investing originated in the early 2000s with the emergence of a new generation of investors aware of global issues such as climate change, social inequality, and poverty. The idea of combining financial returns and positive impact began to take shape at that time.

The term “impact investing” was popularized in 2007 by the Rockefeller Foundation, which supported the development of this field by funding studies and bringing together experts to define the criteria and objectives of this approach. Since then, impact investing has grown significantly with the support of financial institutions, foundations, and even governments.

Although the market is still modest, with less than 10% of sustainable funds in Canada considered impact funds¹, the potential is high and interest sustained.

How is impact investing different?

Impact investing seeks to achieve two objectives. The first is to generate a positive long-term return, like any other investment strategy, and the second is to create a positive social or environmental impact. To achieve this, asset managers look for companies offering products and services that contribute positively to certain ESG issues. To fit the definition of impact investing, two important criteria must be met: Intentionality and measurability.

1. Intentionality: Impact investors deliberately seek to generate a positive social or environmental impact in addition to financial returns. This intention is central to the investment strategy and guides the selection of companies or projects in which to invest.

2. Measurability: Unlike other forms of responsible investing, impact investing requires a rigorous measurement of results. Investors use specific indicators to assess the social or environmental impact of investments, which allows them to track progress and adjust strategies accordingly.

Examples of metrics used to track positive impact could include: Added renewable electricity capacity (measured in MWh), an increase in treated, saved or supplied water (measured in megalitres), or an increase in the number of affordable housing units.

For some, a third criterion must be considered. However, it is more contested and remains at the heart of debates on impact investing.

3. Additionality: Additionality requires demonstrating that the impact would not have been possible without the capital invested. Additionality advocates maintain that an attractive investment opportunity could also be realized without sustainable financing. For some, additionality implies that impact investors direct their capital toward less attractive investments and would therefore be willing to accept a lower financial performance or a lower risk-return ratio.

Current state of the impact investing market

Today, the impact investing market is booming. According to projections, assets under management in this sector are projected to reach USD $7.7 trillion in 2033, more than double what they currently represent². This growth is fueled by increased demand from institutional and retail investors who are increasingly concerned about the non-financial impacts of their portfolios.

Examples of sectors targeted by impact investing include renewable energy, education, health, infrastructure, and access to clean water. Investors are also increasingly interested in tech companies that offer innovative solutions to social and environmental problems.

The impact investing market still faces some challenges. Currently, standardizing impact measurement criteria represents a challenge since no universally accepted framework exists. Moreover, the perception of a trade-off between financial returns and social impact remains an obstacle for some investors.

A market with many possibilities

The future of impact investing looks promising, with a number of trends that should favour its expansion.

First, governments and regulators are increasingly focusing on corporate transparency and accountability, which could help boost investor confidence in the impact investing market.

Second, technology will play a key role in the development of this sector. For example, artificial intelligence can be used to analyze complex data and identify high-impact investment opportunities. The fintech sector also plays a significant role in making impact investing accessible to a wider audience.

Finally, the rise of younger generations, who are more concerned about social and environmental issues, benefits impact strategies. Investors of tomorrow are more likely to favour responsible investments and their influence could accelerate the adoption of impact investing.

What can we conclude?

Impact investing has come a long way since its beginnings, from a niche to a fast-growing sector. With its distinctive features and potential for social and environmental transformation, it represents a new approach to investing. Challenges remain, but the outlook is encouraging and this sector is on track to gain even greater importance. For investors looking to align their investments with their beliefs, impact investing offers a unique opportunity to generate both a financial return and a positive impact on the world.

NBI strategies that integrate impact investing

¹ National Bank Investments, 2024, based on CIFSC data

²https://www.thebrainyinsights.com/report/impact-investing-market-14024#summary

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The information and the data supplied in the present document, including those supplied by third parties, are considered accurate at the time of their printing and were obtained from sources which we considered reliable. We reserve the right to modify them without advance notice. This information and data are supplied as informative content only. No representation or guarantee, explicit or implicit, is made as for the exactness, the quality and the complete character of this information and these data. The opinions expressed are not to be construed as solicitation or offer to buy or sell shares mentioned herein and should not be considered as recommendations. For your convenience, the Website may include links to other Internet sites or resources and businesses operated by other persons (collectively “Other Sites”). Other Sites are independent from National Bank of Canada, and National Bank of Canada and its subsidiaries have no responsibility or liability for or control over Other Sites, their business, goods, services, or content. Your use of Other Sites and your dealings with the owners or operators of Other Sites is at your own risk.

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National Bank Investments is a signatory of the United Nations-supported Principles for Responsible Investment, a member of Canada’s Responsible Investment Association, and a founding participant in the Climate Engagement Canada initiative.

Since the creation of the United Nations Principles for Responsible Investment in 2006 (UNPRI), the integration of environmental, social and governance factors in investment portfolios has grown exponentially. ESG integration presents both challenges and opportunities that vary according to asset classes and helps stimulate the development of innovative products in the field of responsible investment. The creation of green bonds by the European Investment Bank in 2007 is a good example of innovation in the fixed income category, as they enable a positive environmental impact to be achieved while meeting investors’ financial objectives.

Green bonds are based on how funds are used: issuers must direct 100% of the capital towards financing projects with a positive environmental impact, such as investments in renewable energy or public transit. In exchange, investors assume the issuer’s credit risk and earn returns that are comparable to conventional bonds.

Impact investing and change theory

Can green bonds be considered impact investments? According to the CFA Institute, “impact investing is where investments are made with the intention of generating a positive and measurable social or environmental impact alongside financial returns.” Intention is a key element of this definition. Portfolio managers must articulate this intention and provide environmental and social performance indicators.

– According to certain industry players, impact investing requires a “theory of change,” i.e., a credible explanation of the investors’ role in generating an impact, distinct from that generated by the company in which they invest. –

In the context of the bond market, it’s obvious that buying a green bond has broader implications than simply making a positive environmental impact. It supports an entire ecosystem:

1. By focusing on climate risk management, green bond issuers signal that they are positioning themselves to be less vulnerable than their competitors in the future.
2. Strong investor demand demonstrates their readiness to fund these types of projects.
3. Collectively, market participants contribute to speeding up the allocation of the trillions of dollars required to finance a green economy.

According to the AlphaFixe Capital, this multiplying effect demonstrates that green bonds can satisfy the definition of impact investing and, by extension, the theory of change when paired with the intention of supporting a more sustainable economy.

How the green bond market is evolving

The ever-increasing value of green bonds issued worldwide each year bears witness to investors’ appetite for this type of debt and the market’s willingness to finance credible environmental projects.

The green bond market is more mature than the social and sustainability bond markets. This is because they have been around longer, and green projects are more economically attractive. On the other hand, since sustainability bonds enable the simultaneous financing of environmental and social projects, they are an attractive option for issuers wishing to manage a single impact bond program and finance all their projects under a single label.

Another label that could soon see the light of day is transition bonds. In 2023, the federal government published the Taxonomy Roadmap Report for transition financing. A taxonomy of eligible projects has been awaited ever since. Such a classification would give issuers and investors the confidence to finance the decarbonization projects needed to reach the net zero emissions target by 2050.

In the meantime, it’s crucial to keep the dialogue going with market players to direct capital towards a more sustainable and low-carbon economy.

Content presented by AlphaFixe Capital, open architecture partner of National Bank Investments

The information and the data supplied in the present document, including those supplied by third parties, are considered accurate at the time of their printing and were obtained from sources which we considered reliable. We reserve the right to modify them without advance notice. This information and data are supplied as informative content only. No representation or guarantee, explicit or implicit, is made as for the exactness, the quality and the complete character of this information and these data. The opinions expressed are not to be construed as solicitation or offer to buy or sell shares mentioned herein and should not be considered as recommendations.

The views expressed regarding a company, a security, an industry, a market sector in particular, future events (such as market and economic conditions), a company’s or a security’s performance, upcoming product offerings or other forecasts are solely those of the AlphaFixe Capital and do not necessarily represent the views of National Bank of Canada and its subsidiaries (the “Bank”). These views are subject to change at any time based on market or other conditions and could cause actual results to differ materially from the ones anticipated by AlphaFixe Capital. The Bank disclaims any responsibility to update such views. They do not constitute recommendations to buy or sell nor investment advice.

© National Bank Investments Inc., 2024. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Investments Inc.

® NATIONAL BANK INVESTMENTS is a registered trademark of National Bank of Canada, used under licence by National Bank Investments Inc.National Bank Investments is a signatory of the United Nations-supported Principles for Responsible Investment, a member of Canada’s Responsible Investment Association, and a founding participant in the Climate Engagement Canada initiative.

Net Zero, Paris Agreement, carbon neutrality, energy transition, 1.5-degree pathway… These are some terms we hear a lot and they’re coming up more and more often in the conversations around us, but what do they have in common? They all underscore the need to act for the climate. The idea of net zero, which means an economy that minimizes greenhouse gas emissions as much as possible and offsets those that cannot be avoided, has emerged as a key approach in the battle against global warming. So, what are the implications for businesses, and why is a net zero-oriented investment strategy beneficial for investors?

What does Net Zero mean?

To face the demand from investors and the public, but also for economic reasons, companies are increasingly adopting net zero targets, which means pledging to lower greenhouse gas emissions to a level that is near zero by 2050. This can be done through various methods: switching to renewable energy sources, improving energy efficiency, and cutting down waste. This pledge is not only about lowering operational emissions, it also covers the value chain, including suppliers, customers, and product lifecycle.

If nothing else works, companies can offset their carbon emissions by buying carbon credits that fund projects like planting trees.

The benefits of adopting emission reduction targets

• Reputation: Companies that not only value sustainability but also show a clear dedication to act on the climate crisis are more likely to appeal to consumers and investors.
• Competitiveness: As governments around the world keep introducing stricter regulations and carbon pricing mechanisms, companies that have set net zero emissions targets will be better prepared to comply with the resulting rules and extra costs.
• Innovation: Striving for net zero emissions targets motivates companies to develop and use clean technologies such as renewable energy sources, energy-efficient equipment, and sustainable materials.

Reaching net zero emissions is not just a fad. It’s a chance for businesses to contribute to a more sustainable and resilient future. The idea of just transition aims to make this happen in a way that is as equitable and inclusive by creating good work opportunities and leaving no one behind. This concept is especially relevant in an economy where fossil fuels are a major factor, such as the Canadian economy.

Companies can achieve multiple benefits by committing to net zero emissions targets. They can lower their environmental footprint, enhance their competitive edge, and help protect our planet for the people who will come after us.

How can climate strategies benefit investors?

The world is moving towards net zero, and this will create many challenges and benefits for businesses. An investment portfolio that includes reporting issuers who are advancing towards net zero goals is best prepared to handle the changes that come with the shift to a low-carbon world. When you invest in climate solutions, you help as an investor to shape the economy of the future.

The information and the data supplied in the present document, including those supplied by third parties, are considered accurate at the time of their printing, and were obtained from sources which we considered reliable. We reserve the right to modify them without advance notice. This information and data are supplied as informative content only. No representation or guarantee, explicit or implicit, is made as for the exactness, the quality and the complete character of this information and these data. The opinions expressed are not to be construed as solicitation or offer to buy or sell shares mentioned herein and should not be considered as recommendations.

® NATIONAL BANK INVESTMENTS is a registered trademark of National Bank of Canada, used under licence by National Bank Investments Inc.

© National Bank Investments Inc., 2024. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Investments Inc.

National Bank Investments is a signatory of the United Nations-supported Principles for Responsible Investment, a member of Canada’s Responsible Investment Association, and a founding participant in the Climate Engagement Canada initiative.

Investment professionals are increasingly interested in companies adopting practices that reduce risk and ensure their long-term viability. More and more of them are integrating ESG criteria into their investment decisions.[1] However, due to the lack of standardization or, in some cases, the absence of data, it is difficult to get an accurate and complete picture of the true value of a company’s ESG risk management.

The lack of reliable data is one of the main obstacles to the growth of responsible investment according to industry players.[2]

This is where artificial intelligence (AI) comes to the rescue: AI includes a variety of emerging technologies that have made it possible to automate complex tasks at speeds and volumes never seen before. For businesses, this new reality is changing the way they can use and process data. For portfolio managers investing in those businesses, it is a valuable decision-making tool. Here’s how some of National Bank Investments’ (NBI) open architecture partners are using AI in responsible investment (RI).

AI to identify intangible risks

Much of artificial intelligence’s potential comes from natural language processing (NLP) algorithms. These algorithms can identify perceptions, track emerging trends, and detect controversies around companies.

For example, some of our portfolio managers use the services of firms that analyze communications from hundreds of thousands of public sources on stakeholders’ discourse around companies in a multitude of languages. They are therefore able to detect whether companies are consistent in their disclosure on human rights, labour standards, and their environmental commitments among other issues.

AI and the rise of spatial finance

AI models can also analyze the risks associated with ESG factors from a spatial perspective. That is, using a large set of geospatial data, they contribute to identifying climate risks and opportunities related to a specific location. For example, sea-level rise, extreme weather events and temperature patterns can be projected.

By linking this information to the geographic location of their assets, investment professionals can decide to reallocate capital to more resilient areas or to protect existing assets by investing in adaptation measures.

AI to measure positive impacts

The use of AI goes far beyond risk management. It can be useful in identifying and choosing to invest in companies whose products or services have a positive impact on the world. For example, portfolio managers could use AI to align their investments with the United Nations Sustainable Development Goals.

These technologies, which are still emerging, should provide greater clarity on how issuers’ operations fit into solutions to global challenges.

AI as a competitive advantage and its limits

By building AI capabilities, professional investment firms ensure a more accurate collection and analysis of the massive amount of information available, giving them a head start on their investment decisions.

While AI can make essential data accessible to the search for sustainable investments, it does have its limitations. The capacity to distinguish reliable information from the amount of data available remains a very human ability that technology will not replicate anytime soon.

The information and the data supplied in the present document, including those supplied by third parties, are considered accurate at the time of their printing and were obtained from sources which we considered reliable. We reserve the right to modify them without advance notice. This information and data are supplied as informative content only. No representation or guarantee, explicit or implicit, is made as for the exactness, the quality and the complete character of this information and these data. The opinions expressed are not to be construed as solicitation or offer to buy or sell shares mentioned herein and should not be considered as recommendations.

© 2023 National Bank Investments Inc. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Investments Inc.

® NATIONAL BANK INVESTMENTS is a registered trademark of National Bank of Canada, used under licence by National Bank Investments Inc.

National Bank Investments is a signatory of the United Nations-supported Principles for Responsible Investment, a member of Canada’s Responsible Investment Association, and a founding participant in the Climate Engagement Canada initiative.

[1] Canadian RI Trends Report, 2022

[2] Canadian RI Trends Report, 2022

In our sometimes-divided world, certain themes can be unifying because of the importance of the issues they represent. The imperative net-zero targets and the Paris Agreement signed by 194 Parties are a good example. The conclusion of numerous scientific studies on climate change is unequivocal: we, as a society, must consider the sustainability of our decisions for the benefit of future generations. Climate change will not solve itself and requires concerted action.

A number of investment solutions focused on energy transition has emerged in recent years. For conscientious investors, these solutions offer a way to contribute to a low-carbon economy. Whether it’s by investing in renewable energy funds or by selecting companies that have set targets to reduce their emissions, investors who want to go down this path have choices.

However, the responsible investment market is still relatively unregulated, and the resulting confusion can be a deterrent. As responsible investing generates interest and products in this category multiply, so do investor expectations.

Canada’s response

It is with this goal in mind that several organizations have taken it upon themselves to develop sustainable finance frameworks. Canada, through the Canadian Climate Institute, recently released a draft climate investment taxonomy¹. This new guide is designed to help investors identify investments that contribute to Canada’s goal of net-zero emissions by 2050.

The Canadian taxonomy is a comprehensive system that classifies projects into four categories: green, transition, enabling and excluded. These categories help identify investments that support a low-carbon economy and provide greater clarity for investors.

Both a reference tool and a roadmap toward net-zero objectives, this taxonomy is one of the many frameworks that we see emerging in the sustainable finance industry.

Sustainability according to National Bank Investments

How do you choose investments that respond to the many climate issues? The answer for National Bank Investments (NBI) was found in the form of a robust existing framework: the 17 United Nations Sustainable Development Goals (SDGs). The NBI Sustainable solutions are actively managed investment solutions based on these well-known goals. Adopted by UN Member States, the SDGs are a guide to investing in an inclusive and sustainable economy, helping to protect the planet and improve the lives of people around the world.

By aligning with the SDGs, NBI is well positioned to take advantage of the additional transparency proposed by Canada’s climate taxonomy. Moreover, the transition to a low-carbon economy responds directly to Goal 7, Affordable and clean energy. Many of the underlying assets of our Sustainable solutions are selected to meet this objective. For example, our solutions invest in financing renewable energy projects, bond issues for the energy-efficient transformation of buildings, or in companies manufacturing electric vehicle components.

Canada recently took a major step toward sustainable and transparent finance. For its part, NBI maintains its commitment to support climate goals that aim for a low-carbon economy. Through its range of products financing numerous social and environmental projects, NBI’s Sustainable solutions are ideal solutions for a climate-conscious portfolio!

NBI Funds and NBI ETFs (the “Funds”) are offered by National Bank Investments Inc., a wholly owned subsidiary of National Bank of Canada. Commissions, trailing commissions, brokerage fees, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus of the Funds before investing. The Funds’ securities are not insured by the Canada Deposit Insurance Corporation or by any other government deposit insurer. The Funds are not guaranteed, their values change frequently and past performance may not be repeated. NBI ETFs units are bought and sold at market price on a stock exchange and brokerage commissions will reduce returns. NBI ETFs do not seek to return any predetermined amount at maturity.

© 2023 National Bank Investments Inc. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Investments Inc.

® NATIONAL BANK INVESTMENTS is a registered trademark of National Bank of Canada, used under licence by National Bank Investments Inc.

National Bank Investments is a signatory of the United Nations-supported Principles for Responsible Investment, a member of Canada’s Responsible Investment Association, and a founding participant in the Climate Engagement Canada initiative.

¹ Government of Canada, 2023, Taxonomy Roadmap Report, https://www.canada.ca/en/department-finance/programs/financial-sector-policy/sustainable-finance/sustainable-finance-action-council/taxonomy-roadmap-report.html

The growing interest in responsible investment is undeniable. With the ever-increasing number of products available on the market and the complexity surrounding this type of investment, investors need more than ever to be accompanied by their adviser to choose the products that respect their social and environmental convictions.

At NBI, we believe people are at the heart of finance and investment. This conviction is also in line with our vision of responsible investment. In addition to allowing us to select among the most successful portfolio management firms in the world, our open architecture gives us the flexibility to do business with those who have adopted the best practices in responsible investment. We base our assessment of external firms on more than 25 criteria, including the ESG pillar, which is an integral part of our due diligence.

The diversity of approaches enriches our platform

The portfolio managers selected by NBI employ different responsible investment approaches—depending on the asset class—ranging from excluding undesirable companies or economic sectors to aligning a portfolio around the main themes related to sustainable development. It is this last approach that distinguishes NBI in terms of responsible investment.

« Our open architecture gives us the flexibility to do business with those who have adopted the best practices in responsible investment. »

The Sustainable Development Goals as an investment framework

NBI uses the 17 United Nations Sustainable Development Goals (SDGs) to define sustainability. The United Nations developed the SDGs to fight poverty and inequality and improve the lot of the planet.

In March 2020, NBI became Canada’s first investment fund management company to launch actively managed ETFs whose investment process integrates the SDGs. Since then, we have expanded the offer with a desire to make our sustainable strategies accessible to everyone.

The portfolio managers in charge of NBI’s sustainable development mandates must ensure that the securities they invest in offer products and services that meet one or more of the SDGs. Thus, the selection of portfolio companies excludes right off sectors such as defense, alcohol, tobacco, and thermal coal, among others.

Building the portfolio of the future

NBI’s offer reflects our philosophy of placing people at the heart of finance and investment. We constantly strive to improve risk-adjusted returns and believe responsible investing is one way to get there.

Our definition of a future-oriented portfolio is looking for companies seizing the opportunities of a world in transition, thereby allocating capital to projects that will contribute to a more sustainable future.

© 2022 National Bank of Canada. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank of Canada.

® NATIONAL BANK INVESTMENTS is a registered trademark of National Bank of Canada, used under licence by National Bank Investments Inc.

The latest report from the Intergovernmental Panel on Climate Change (IPCC)¹ shows us once again that the consequences of the climate crisis are being felt around the world and that the only way to address it is to reduce our greenhouse gas (GHG) emissions. This oft-repeated observation reminds us that colossal sums must be invested in the transition economy every year. In order to meet net-zero emissions targets, governments and the private sector must work together and, above all, pool their financial means. Green bonds are an instrument that is increasingly being used to achieve this.

Green bonds have gained popularity in recent years. The Climate Bond Initiative estimates that the green bond market will reach one trillion U.S. dollars in 2022. This is more than double the value of 2020 issues.

Figure 1 Source

Since the first issue of green bonds in 2007, many companies and governments have used them to finance green projects focused on protecting the environment, adapting to climate change, and reducing GHGs. In 2014, in order to regulate the market and limit greenwashing, the International Capital Market Association (ICMA) launched the Green Bond Principles to which most current issuers adhere.

Here are the four key areas on which the Green Bond Principles are based:

• Use of funds
• Project selection and evaluation process
• Fund management
• Reporting

Why hold bonds in a portfolio?

Considering the current economic environment and market volatility, which is expected to continue in 2022, there are advantages to integrating bonds into your portfolio:

• Make use of an instrument that offers a stable source of income
• Preserve your capital
• Enjoy attractive diversification potential

History shows us that bond returns are less volatile than equity returns and positive when equity returns are negative.

Sustainable products at NBI

As part of its drive to offer innovative products, in February 2022, National Bank Investments launched a new Sustainable Canadian Short-Term Bond ETF (TSX: NSSB).

Since 2020, it has already offered the NBI Sustainable Canadian Corporate Bond ETF (TSX: NSCC) and the NBI Sustainable Canadian Bond ETF (TSX: NSCB) (NSSB, NSCC and NSCB, together are the “NBI Sustainable Products”). The latter has also been deployed in the form of a mutual fund.

Why NBI Sustainable Products are a good economic and environmental choice:

• They are primarily intended to finance projects with positive environmental and social impacts
• They can contribute to achieving the UN Sustainable Development Goals
• They are managed by portfolio sub-managers who base their internal analysis on widely recognized sustainability guidelines, principles, and/or objectives.

Please refer to the NBI Sustainable Products prospectus for more information.

Green bonds are a wise choice to balance a portfolio and protect against market volatility, while contributing to projects that are positive for the environment and society.

¹ Working Group II Sixth Assessment Report

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The information and opinions herein are provided for information purposes only and are subject to change. The opinions are not intended as investment advice nor are they provided to promote any particular investments and should in no way form the basis for your investment decisions. National Bank Investments Inc. has taken the necessary measures to ensure the quality and accuracy of the information contained herein at the time of publication. It does not, however, guarantee that the information is accurate or complete, and this communication creates no legal or contractual obligation on the part of National Bank Investments Inc.

NBI ETFs are offered by National Bank Investments Inc., a wholly owned subsidiary of National Bank of Canada. Management fees, brokerage fees and expenses all may be associated with investments in exchange-traded funds (“ETFs”). Please read the prospectus or ETF Facts document(s) before investing. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. ETF units are bought and sold at market price on a stock exchange and brokerage commissions will reduce returns. NBI ETFs do not seek to return any predetermined amount at maturity.

© 2022 National Bank Investments Inc. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Investments Inc.

® NATIONAL BANK INVESTMENTS is a registered trademark of National Bank of Canada, used under license by National Bank Investments Inc.

National Bank Investments is a member of Canada’s Responsible Investment Association and a signatory of the United Nations-supported Principles for Responsible Investment.

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Client interest in environmental, social, and governance (ESG) investing continues to grow. As more products are available on the market, Annamaria Testani, Senior Vice President, National Sales, at National Bank Investments (NBI), believes advisors have a great opportunity to educate clients on ESG investing.

How would you define ESG investing?

There are many different definitions of ESG. Twenty years ago, ESG investing started with exclusions—different companies looking at their values and deciding not to invest in certain sectors. That has evolved. Now it’s about looking at every investment that’s made through ESG factors. And that’s on top of doing traditional financial analysis. But there are still a lot of misconceptions about ESG investment on the client’s part.

How can advisors fight misconceptions about ESG?

We’re at the beginning of another 10-year journey, because there are now governing laws on ESG. So, you need to take a certain amount of time every week and educate yourself.

Next, you have to manage clients’ expectations. For instance, if they want their whole portfolio to include ESG factors, then you have to ask, “What does that mean? Do you want it to be in sustainable investing? Ethical investing?” We must help investors master ESG terminology. Sustainable investing is often confused with ethical investing, which uses personal principles as a filter and has little relationship to sustainability. When clients hear sustainable, they tend to think about environmental protection. Social and governance causes aren’t necessarily top of mind.

So, ask questions, listen, and understand what RI or ESG investing means for your clients. Get to know your clients’ needs and expectations, and then share your knowledge with them.

With more ESG products coming to market, how can advisors manage their product shelves and stay on top of their game?

There’s a balancing act between managing your time and knowing your clients. For instance, I’d love to learn all about the 6,000 products in the industry, but I may not have that capability. So, advisors should find the five or 10 buckets of needs that are common with their clients. Once you know what the buckets are, then you can get two to four viable solutions per need and do the due diligence.

And once you apply ESG factors, you start looking at companies in a different way and managing your risk in a different way. You should embed filters in your models. For instance, you might ask a company about the average salary of the president versus the employees. I’ve noticed that investors are interested in robust diversity and inclusion policies. They want to see corporate transparency and fair executive compensation. So, if that aspect of a company is ridiculous, you might give that stock a substandard mark.

At NBI, we believe those additional filters can give you at least as good a return, if not better. It definitely helps you manage your downside risk. Showcasing that value to clients is an important step.

What’s the range of NBI’s Responsible investment solutions?

Almost all of our portfolio managers are PRI signatories, which means they committed to integrate ESG factors in their investment decision-making practices. We’re looking at RI at the heart of our processes and product lines.

Many of the products launched today track a specific index. But what we’re doing is different because we’re not passive. We think value can be added through active management. We offer the first platform of actively managed ETFs and mutual funds based on the UN Sustainable Development Goals in Canada. Our managers dig into the business plans of every company and find the ones that are going to benefit from their investments toward sustainable development goals.

What are the benefits of a business relationship with NBI?

We have an asset management governance process called OP4+. When I said advisors need to pick two to four viable solutions per need, we do that for you. We outsource our portfolio managers. So, with us, you’re buying into that efficiency. We’ll do the heavy lifting and due diligence, so you can concentrate on having more enriched conversations with your clients.

“Once you apply ESG factors, you start looking at companies in a different way and managing your risk in a different way.”

Annamaria Testani
Senior Vice President, National Sales

For more information on NBI’s responsible investing approach, visit nbinvestments.ca/sustainable.