Sustainable investing at a crossroads amid ongoing uncertainty

Text transcript

Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

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Aaron White, executive director and head of sustainable investments at CIBC Asset Management 

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Let’s start with the biggest trend facing the sustainable investment landscape today: the changing regulatory and policy environment around climate and ESG policies. 

Over the past decade, we saw a surge in commitments to net-zero goals. But over the last year, we’ve seen a noticeable shift. Some companies and market participants, like asset managers and pension plans, are pulling back from their net-zero pledges and/or their affiliations. This is largely due to the lack of clarity around the regulatory frameworks, and uncertainty in how they may be held accountable for ambitious targets that they might not meet. This is compounded by unsupportive policy and legislation that is rising in the United States, creating further uncertainty for industry participants. 

This important reaction for investors is now more important than ever to understand corporate and industry action under a backdrop of less clarity. Evaluating how participants are reacting to the material impacts to their business or portfolio, and not simple checkmarks for their targets, commitments and affiliations. This is much more complex, and requires a significant amount of attention to direct action at the company or the plan that you’re evaluating. 

This brings us to the next important trend: concerns around continued policy support for the transition to a low-carbon economy. 

Governments worldwide are grappling with competing priorities, the economic recovery from Covid and rising inflation, energy security and climate action. The question is, will policy support remain strong, or will we see a continued rollback in incentives and regulations? For businesses, this uncertainty makes long-term planning incredibly challenging. And for investors, [it] creates greater uncertainty around the realities of transition risk in portfolios. 

Meanwhile, we’re also seeing in the United States, diversity, equity and inclusion initiatives are coming under fire. Some industry leaders are questioning the impact of these programs, particularly in light of the political and social pushback. Organizations are pivoting to measuring how DEI initiatives deliver positive financial outcomes, and ensuring that these efforts are creative to business and investment success. 

It’s clear that diverse sources of thought drive better decision-making. And so, as investors, we’re increasingly having to understand how our portfolio companies are reacting to this legislation and pushback, and ensuring that DEI policies remain positive and accretive to the business success in this new environment. 

And then, finally, there’s also COP30, the next major United Nations Climate Conference set to take place in Brazil later this year. As countries prepare to submit new nationally determined contributions — or NDCs — there’s growing concern that we’re falling behind on global climate goals, while waiting to see whether COP30 will bring ambitious new targets, or whether we’ll see reduced ambition in the face of political and economic pressures. All this while the United States has pulled out of the Paris Agreement and, in essence, the COP process.  

The stakes could not be higher, and we approach significant milestones in our ambition for net zero, and the outcomes will shape the trajectory of climate action for years to come. 

It’s clear that we’re at a crossroads in sustainability policy, and the decisions made today — whether it’s doubling down on disclosures and transparency, strengthening DEI initiatives, or setting bold climate targets — will have significant implications for companies and investors. As investors, it will be important in this environment of uncertainty to remain measured in our approach, and to stay focused on portfolio materiality. 

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We’re currently focused on three major opportunities that investors should be looking out for in today’s market. 

Firstly, nuclear energy is in the midst of a renaissance. As part of the energy transition, policy makers are pivoting focus to nuclear energy to play a significant role in a secure pathway to net zero. And the market is anticipating that project capacity will nearly double by 2050. 

Several intergovernmental panel on climate change scenarios also call for similar or greater amount of nuclear energy capacity growth by 2050. And as of 2022, nuclear power has displaced nearly 70 gigatons of emissions globally, and with supportive policy will be a key driver for further emissions reductions moving forward. 

We saw this policy commitment at COP28 with 20 countries, including Canada, committing to tripling nuclear energy capacity by 2050 by mobilizing investment, ensuring strong oversight and safety standards, and supporting the development and construction of necessary infrastructure. 

Domestically, we’ve seen policy support accelerate through the inclusion of nuclear energy in Canada’s Green Bond Framework, and, more recently, a roadmap for increased investment in the Canadian nuclear industry released by Natural Resources Canada in March of 2025. 

While concerns around accidents and waste management remain a challenge for this sector, both operationally and optically, these risks are declining. Nuclear power plants have been operating for approximately 60 years across 36 countries, resulting in over 18,500 cumulative reactor years around the globe, with very few safety incidents. This does not mean that oversight, innovation and risk management should be ignored, but rather underscores the improvements that have been made in recent decades. 

As the nuclear energy industry evolves, there are potential implications and opportunities for companies across several sectors, including utilities, materials and industrials. Mining enrichment and delivery of uranium will be critical services as demand increases, with additional opportunities around infrastructure build out, power plant construction and waste management. 

We believe Canada is in a unique position to benefit from these trends. As the second biggest producer of uranium globally, higher demand for nuclear energy domestically and internationally should benefit local communities by creating jobs, contributing to GDP growth, accelerating emissions reductions and bolstering domestic energy security. 

The second area of opportunity we’re seeing for investors is around the emergence of the Indigenous economy in Canada. New government policy support — including loan guarantee programs to unlock equity participation in major projects — will spur incredible contributions from Indigenous communities to the Canadian economy. Nation-building infrastructure projects and the unlocking of Canada’s critical mineral deposits will go through Indigenous lands and communities. 

This will mean that governments and companies will need to actively bring Indigenous communities to the table, and support participation in the economic benefits of these projects. Now more than ever, we as Canadians will need to reaffirm our commitment to the United Nations Declaration for the Rights of Indigenous People, and ensure that project approvals appropriately incorporate free and prior informed consent. 

And finally, possibly the most exciting development for investors related to the energy transition is the growth and maturity of the carbon management industry. 

First, it’s important to understand the difference between compliance and voluntary markets. Historically, investors have thought of carbon markets as, effectively, the compliance markets, which are cap and trade systems across the developed world that set emissions caps on industry, and create a trading volume of credits for those that overproduce their allotment or underproduce their allotment. And there have been the development of derivatives markets to trade in these futures contracts around some of these credits. 

But what we’re really talking about here is the growth in the voluntary markets. And the voluntary markets have had a poor representation for their contribution to the climate transition as a result of the dominance of avoidance credits, which are essentially preserving existing land or forests, as an example, to produce a credit that has low cost and has no additionality. 

But what we’re talking about here is the emergence and growth of the carbon dioxide removal market. And this industry will need to scale to as much as 10 gigatons per year of production to meet various net-zero scenarios, meaning that this will become one of the largest commodity markets by volume in the world by 2050, and beyond. 

The market is saturated across various degrees of approaches, including nature-based solutions, which range from projects like afforestation through to biochar (burning of organic material in low-oxygenated environments), through to enhanced rock weathering, which accelerates a natural process to store carbon in soil, all the way out to novel and technology-based solutions that you may think of when you think of the CDR market, which are large fans pulling air in and condensing CO2 to be stored at a storage facility. 

These projects are all maturing, and all starting to pass first-of-a-kind and demonstration projects. 

And alongside that, we now have major buyers who are active in the market, entering off-take agreements with these developers. These buyers are the likes of Microsoft, the frontier conglomeration, which includes members like Stripe and Shopify. And these actors are creating the financial incentive for investors to come into the market to finance these projects. 

We believe that this market has now reached the maturity where it’s ready for investors to scale, and we believe that debt will be an essential component of this, and we are seeing some very exciting opportunities around the CDR market. 

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There is debate in the industry today as to how emerging markets will contribute to the climate transition, given that developed market economies have benefited in the growth and prosperity associated with utilizing fossil fuels as a core part of the energy mix to drive growth throughout the industrial revolution, and the information age. It is now being asked of emerging market economies to take a different approach, and one that may be more costly and less effective in terms of real, immediate growth. 

And so throughout the COP process, there has been significant amount of debate in terms of how the global south will participate in the global transition; how they will ultimately be responsible for the costs of managing the physical risks that materialize as a result of the climate crisis; and lastly, how developed economies will support the emerging markets in terms of the energy transition and building a low-carbon economy that facilitates the same degree of growth opportunities that were presented for developed markets. 

This is an extremely complex issue, and one that is sure to be at the top of the discussion point at COP30 in Brazil. We may see some resolution as it relates to transfer payments. We may see some resolution as it relates to how developed economies will support emerging markets in their development of a low-carbon energy system. But this is definitely something that we, as investors, need to monitor as it will be a critical component of whether or not we can achieve our net-zero ambitions because we need to bring the entire world together within this process.

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