In recent years, sustainable investment has shifted from a niche consideration to a mainstream imperative. Investors are increasingly recognizing that environmental stewardship is not just ethically commendable but also financially prudent. According to the Global Sustainable Investment Alliance, sustainable investment assets reached over USD $30.3 trillion globally in 2022 [1], with North America accounting for over 36% of these investment assets. In Canada and the United States, funds dedicated to Environmental, Social, and Governance (ESG) criteria have surged, reflecting a paradigm shift in how investment decisions are made.
In Canada, the sustainable investment landscape has experienced significant growth, reflecting the nation's commitment to environmental stewardship and social responsibility. According to the Responsible Investment Association (RIA) of Canada, as of 2022, assets under management (AUM) in responsible investment strategies surpassed CAD $2.9 trillion [2]. This figure represents 49% of all professionally managed assets in Canada, indicating that sustainable investing is moving into the mainstream.
Fund inflows into sustainable investment products have been robust, with a notable increase in ESG-focused mutual funds and exchange-traded funds (ETFs). Canadian firms such as NEI Investments, RBC Global Asset Management, and Desjardins are leaders in this space. These firms offer a variety of sustainable investment options, integrating Environmental, Social, and Governance (ESG) factors into their investment processes. Their leadership has been pivotal in providing investors with opportunities to achieve financial returns while promoting positive environmental and social outcomes.
In the United States, sustainable investing has expanded even more rapidly. The US Sustainable Investment Forum’s (SIF) 2022 Report on US Sustainable and Impact Investing Trends revealed that sustainable investing assets reached over USD $8.4 trillion [3], accounting for one in every eight dollars under professional management. Climate change is the most important specific ESG issue reported by money managers in asset-weighted terms, addressed across USD $3.4 trillion in assets [3].
Fund inflows into ESG and sustainable funds have consistently outpaced outflows, even during periods of market volatility. Major investment firms such as BlackRock, Vanguard, and State Street Global Advisors have taken leadership roles in promoting sustainable investing. BlackRock, for example, has emphasized the significance of sustainability and climate risk in its investment strategies, with CEO Larry Fink advocating for companies to adopt sustainable practices. These firms have expanded their offerings to include a wide array of sustainable investment products, such as ESG-focused mutual funds and ETFs, thereby making sustainable investing more accessible to a broader range of investors.
Launched in 2021 by the UN Special Envoy on Climate Action and Finance at COP26 the Glasgow Financial Alliance for Net Zero is a network of international financial institutions committed to the principles of “net zero” investment.
The concept of “net zero” originated in the 2014 UN Intergovernmental Panel on Climate Change’s (IPCC’s) Fifth Assessment Report, which said, “Concentrations of CO2 in the atmosphere can only be stabilized if global [net] CO2 emissions peak and decline toward zero in the long term.” [4] The 2018 IPCC special report on 1.5°C more pointedly stated, “Limiting temperature rise to around 1.5°C and preventing the worst impacts of climate change implies reaching net-zero emissions of CO2 by mid-century along with deep reductions in non-CO2 emissions.” [5]
The Glasgow Financial Alliance for Net Zero includes over 315 asset manager signatories with over USD $57 trillion in assets under management [6].
Investors are no longer satisfied with vague commitments to sustainability; they demand quantifiable data. The Task Force on Climate-related Financial Disclosures (TCFD), a not-for-profit organization created to encourage companies to disclose financially material climate-related information, recommends all companies disclose the following climate-related data and information:
Annual greenhouse gas emissions reporting allows investors to assess a company's direct and indirect impact on the environment, enabling comparisons across industries and tracking progress over time. This includes a businesses Scope 1, 2 emissions as well as their material Scope 3 emissions.
Carbon Intensity is a company’s total annual emissions divided by their annual revenue. As a metric it provides insight into the carbon efficiency of a company's revenue-generating activities, helping investors evaluate the potential carbon risk within their investment portfolios.
An Internal price on carbon demonstrates that a company is proactively accounting for the potential costs associated with carbon emissions, indicating robust risk management and a commitment to sustainability.
A Climate risk analysis assesses how climate change might affect a company's operations, supply chain, and financial performance, including both physical risks (like extreme weather events) and transitional risks (such as regulatory changes and market shifts). By disclosing this information, companies offer transparency that builds investor confidence and aligns with the growing emphasis on sustainable investment practices.
A net zero pathway is a strategic plan outlining how a company will reduce its greenhouse gas emissions to net zero by a specific target date, often by 2050. This pathway involves setting ambitious, science-based targets to cut emissions across all areas of the business across all three emissions scopes.
Accurate emissions reporting allows investors to evaluate a company's environmental impact comprehensively. It influences investment decisions by highlighting potential risks associated with regulatory changes, resource scarcity, and shifting consumer preferences. Precise data enables investors to make informed decisions, aligning their portfolios with sustainable practices.
Adhering to global reporting standards enhances credibility. Frameworks like the Greenhouse Gas (GHG) Protocol and the Task Force on Climate-related Financial Disclosures (TCFD) provide guidelines for consistent and transparent reporting. Compliance demonstrates a company's commitment to best practices, further attracting investor interest.
For small businesses, this trend presents a unique opportunity. By demonstrating a commitment to sustainability, companies can attract a new wave of investors who prioritize environmental impact alongside financial returns. Transparency about emissions and sustainability practices not only enhances a company's reputation but also provides a competitive edge in an increasingly eco-conscious market.
Many companies struggle with obtaining the resources and expertise needed to collect, calculate, and report the information investors and regulators are looking for. According to an MSCI (2023) report, 50% of constituents in the MSCI ACWI Index report Scope 1 and/or Scope 2 emissions and just 37% report some form of Scope 3 emissions. Larger firms tend to have more resources with which to address disclosures. A Conference Board (2022) report found that “larger firms disclose greenhouse gas (GHG) emissions at 2.5 times the rate of smaller firms.” [6]. The small business reporting gap creates a significant opportunity for small businesses to stand out and be seen as a leader in their industry.
Calculating emissions can be complex and resource-intensive. Tool Zero simplifies this process by analyzing your business invoices to calculate Scope 1, 2, and 3 emissions accurately. Our software automates data collection and analysis, providing insights without the need for extensive manual input or in house expertise.
By providing reliable and verifiable emissions data, Tool Zero helps businesses build trust with investors. Our detailed reports align with recognized standards, ensuring that your disclosures meet investor expectations for transparency and accuracy.
Craft a Compelling Sustainability Narrative: Clearly articulate your commitment to sustainability and how it integrates with your business model.
Leverage Tool Zero Reports: Use our detailed emissions reports to provide concrete data to investors and show how a project or initiative can improve your businesses climate impact.
Highlight Compliance and Standards: Emphasize adherence to recognized reporting frameworks to build credibility.
Sustainability is not just a moral choice but a strategic business decision. By embracing transparent emissions reporting, small businesses can unlock new investment opportunities and position themselves for long-term success.
Ready to attract sustainable investment? Let Tool Zero guide you through accurate emissions reporting. Contact us today for a demo or consultation at contact@toolzero.com.
[1] “Global Sustainable Investment Review 2022 | GSIA.” https://www.gsi-alliance.org/members-resources/gsir2022/
[2] “2023 Canadian RI Trends Report - Responsible Investment Association,” Responsible Investment Association, Oct. 26, 2023. https://www.riacanada.ca/research/2023-canadian-ri-trends-report/
[3] “The Sustainable Investment Forum.” https://www.ussif.org/trends
[4] “Fifth Assessment report - IPCC” IPCC. https://www.ipcc.ch/assessment-report/ar5/
[5] “Global warming of 1.5 oC” Global Warming of 1.5 oC. https://www.ipcc.ch/sr15/
[6] “Report: Gap in climate disclosures between Large, Small COS,” The Conference Board. https://www.conference-board.org/press/climate-disclosures-gap
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