Sustainable investing at a crossroads amid ongoing uncertainty

A changing regulatory environment for climate and ESG policies is the biggest factor impacting the sustainable investing landscape today, according to Aaron White, executive director, head of sustainable investments at CIBC Asset Management.

“Some companies and market participants, like asset managers and pension plans, are pulling back from their net-zero pledges and their affiliations,” he said in a June 4 interview. “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.”

As a result, investors must evaluate how companies and participants are reacting to the material impacts to their businessess and portfolios, he noted.

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There are also concerns around whether or not policy support for the transition to a low-carbon economy will remain strong, said White.    

“For businesses, this uncertainty makes long-term planning incredibly challenging,” he said. “And for investors, [it] creates greater uncertainty around the realities of transition risk in portfolios.”  

Further, there are questions surrounding the impact of diversity, equity and inclusion (DEI) initiatives in the U.S., he added. “Organizations are pivoting to measuring how DEI initiatives deliver positive financial outcomes, and ensuring that these efforts are creative to business and investment success.”

The industry is also looking towards November’s United Nations Climate Change Conference, COP30, where leaders will gather to discuss global climate goals.

“[The industry is] 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,” White said.

The outcome of these factors will shape the sustainable investing landscape going forward, he said, whether it’s more disclosure on policies, strengthened DEI initiatives, or bolder climate targets.

Opportunities

Despite ongoing uncertainty, there are still opportunities in sustainable investing, White noted.

Growth in nuclear energy is one area to consider, with project capacity expected to double by 2050, he said. And nuclear energy is now included in Canada’s Green Bond Framework.

“While concerns around accidents and waste management remain a challenge for this sector, both operationally and optically, these risks are declining,” he said, adding that following 60 years of operation, nuclear power plants have had “very few safety incidents.”

White suggested looking to utilities, materials and industrials within nuclear energy, including mining and uranium as demand increases.

There has also been new policy support from governments for infrastructure projects in Indigenous communities, he noted, which will provide opportunities for investors.

“Governments and companies will need to actively bring Indigenous communities to the table, and support participation in the economic benefits of these projects,” he said.

The carbon dioxide removal (CDR) market also provides opportunities. The industry is expected to scale 10 gigatons of production per year, he said, making it one of the largest commodity producers by 2050.

Investors can look to companies in afforestation, biochar, rock weathering and technology-based solutions, White suggested, adding that Microsoft, Stripe and Shopify are all active in the CDR market.

“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,” he said.

Investors should also monitor how emerging markets manage costs associated to the physical risks related to climate change, he added, and how developed economies support the south in the transition to a low-carbon economy.

“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,” he said.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.