Companies have been jumping on the environmental, social and corporate governance (ESG) bandwagon for years, but it’s not just a fad for Desjardins Group, it’s the Lévis, Que.-based firm’s modus operandi.
“For us, it’s not just a trendy new concept,” said Guy Cormier, chief executive of North America’s largest financial services co-operative with $371 billion in total assets. “We launched our first environmental mutual fund in 1990. So, it’s been more than 30 years that we are involved in the fight against climate change and try to promote financial products where people can invest their money with an impact on the planet.”
It’s a strategy that is catching on elsewhere, with ESG assets under management topping $3.2 trillion in 2020, a 48 per cent increase over a two-year period, according to Canada’s Responsible Investment Association.
In response to increased demand from investor clients, in late May, Desjardins expanded its SocieTerra brand, a line of funds connected to low-carbon businesses, which now includes 10 new funds and one portfolio.
But skeptics abound. Hard-line fund managers are vocal about their disdain for responsible investing. James Whittington, head of responsible investment at Austin, Tex.-based Dimensional Fund Advisors LP, which has about $857 billion of assets under management, said responsible investing is not a meaningful driver of change.
Even as more and more investors sign onto the United Nations Principles for Responsible Investment (PRI), which offers ways for investors to implement ESG principles into their strategies, critics say little has come from their efforts.
“What actually happens when investors with $100 trillion of assets commit to investing more responsibly? The answer is not much — at least so far,” wrote the Harvard Business Review in 2021. “When companies offer insincere commitments or overpromise transformation, they risk undermining the real work being done by others.”
Canadian investors also remain unconvinced of the merits of such funds. In 2021, nearly half of mutual fund investors in Canada said they still did not have responsible investments in their portfolios.
Desjardins, though, is serious about its commitment to responsible investing.
“At least we’re doing something,” Cormier said. “We have to start somewhere, and if we wait (for the moment) that every individual, every company is 10/10, and everything is perfect, we won’t fix the challenge that we have to fix on this planet.”
Desjardins regularly checks in with the businesses it invests in to ensure they’re still committed to ESG principles. Those that change their minds lose Desjardins’ backing, Cormier said.
“We want to be with you as partners, as long as we feel that you integrate ESG criteria,” he said. “But if you no longer want to be involved or serious … at one point, Desjardins will leave the table.”
Green funds don’t always perform well. Any “promise that you can outperform the market by your insight and evaluating ESG risks probably isn’t going to stack up,” according to Dimensional’s Whittington.
At least we’re doing something
When asked whether green funds have lower returns, Cormier said, “It’s a myth… We have more and more members and clients that are saying, ‘Yes, we want returns, but with my money, I’m not just trying to have as much as I can with my returns; I want to have an impact on companies, on people.’”
Responsible investing funds provide returns that are equal or superior to carbon-heavy ones, Marie-Justine Labelle, head of responsible investment at Desjardins, said. The reason is not necessarily because of the emphasis on ESG, but because companies that prioritize sustainability tend to be better managed overall, she said.
“Companies that have the foresight to identify emerging environmental and social mega-trends and are proactive in addressing them … are being better managed, more resilient, and better at adapting to these trends,” she said. “So, it may be something to do with better overall corporate management.”
Cormier said that while the E in ESG is important, people often forget about the S for social and G for governance.
“The S in ESG is so important for us,” he said.
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To that end, Desjardins supports small business and financial literacy in schools. It also hires locally.
On the governance side of things, Desjardins tries to invest in companies where women make up at least 30 per cent of management or the board of directors. Cormier also listens to suggestions from the firm’s youth advisory board he formed upon becoming president in 2016.
Despite a focus on ESG, Cormier said he also keeps a keen eye on rising interest rates and is concerned about a possible recession, though he’s optimistic in light of rising wages and decreased unemployment.
“I think that right now, there is a lot of noise in the system, regarding what is happening with the war in Ukraine and the oil price,” he said.
Still, he doesn’t think recession is a given. “The next few months will be key to see where we are heading,” he said.