Sustainable investing is exploding in Canada as the coronavirus and an anti-racism movement highlight long-standing social inequalities.
Net inflows into Canadian exchange-traded funds that track companies focusing on environmental, social and governance factors has surged to C$740mn ($544mn). That has already outstripped the C$200mn invested in 2018 and the C$142mn last year, excluding seed capital, according to TD Securities Inc. With 15 new ESG products launched in Canada this year, investors now have 38 ETFs focused on impact investing to choose from.
“In a time where the conscious investor is experiencing and observing a great deal of social and economic change, funds that provide exposure to companies that are aware of the environmental, social, and governance impact of their businesses have increased in popularity,” said TD analyst Andres Rincon.
Covid-19 has hit the weakest and lowest-paid the hardest, and investors are taking a closer look at how companies pay and treat workers, community engagement and support during the outbreak and whether corporations have been agile enough to rework their manufacturing facilities to make personal protection equipment.
Global protests on systemic racism are also shining a light on the stark difference in companies’ diversity efforts. Both are bringing the ‘S’ in ESG investing front and centre.
“The pandemic has reinforced the importance of taking ESG into consideration when assessing corporate strategy, operational risks and competitive positioning,” said Bloomberg Intelligence analyst Adeline Diab during a live Bloomberg Q&A on ESG investing last week. And despite a rout at the end of the first quarter that saw global stock markets plunge on coronavirus concerns, ESG ETFs in Canada saw “great momentum in their asset-gathering potential,” signaling that investors are sticking to their bets on social and responsible investing, said Rincon.
ESG flows worldwide have been mimicking gold, acting as a haven in times of market upheaval, Diab said during the Q&A. The vehicles may even increasingly be considered an alternative to low-volatility strategies in a market downturn, according to a report she published in April.
“Although Covid-19 is not yet in the rear-view mirror, it is fair to say that the pandemic has further cemented a loyal base of investors in ESG ETFs and has increased the legitimacy of responsible investing,” Rincon said. Here’s what happened in Canada last week.
Stocks: The S&P/TSX Composite index climbed 1.4% last week with tech and health-care stocks posting the biggest gains. Shopify Inc’s surge continued with a 19% gain amid an announcement that it teamed up with BlackBerry and the Canadian government on a contact tracing app. Shopify’s biggest equity bull also said its stock could rally to $1,000. Bausch Health Cos jumped 17% last week as HC Wainwright raised its US-listed share price target by 28%.
Bonds: The Canadian 10-year bond yield was little changed at 0.53%, while two-year bond yield rose to 0.3%.
Foreign investors mopped up the flood of new issuance by Canadian governments and companies, a sign the nation continues to be viewed a safe haven. Investors from outside the country bought a net C$49bn ($36bn) of Canadian securities in April, the largest monthly purchases from abroad on record.