Disparity Found ESG Funds
Among responsible or environmental, social, and governance (ESG), funds in Canada differ greatly from each other, says a DBRS Morningstar commentary discussing the wide disparity in investment approaches and transparency for Canadian funds. It says some have a much more thorough approach to how ESG considerations are incorporated and a higher level of transparency regarding their investment process. Nearly all funds employ some sort of exclusionary approach whereby companies in unsustainable or unethical industries are excluded from the fund. Shareholder engagement is also commonly used, with the fund taking an active role in improving the ESG practices in the companies it has invested in. Funds focused on specific ESG concerns or ones that quantify their positive impact are less common. For asset managers, having a suite of ESG product offerings may allow them to meet evolving customer needs and generate higher sales and earnings. However, for DBRS Morningstar, the quality and breadth of an ESG fund lineup remains secondary to other credit rating considerations. Moreover, it is important that the ESG funds be robust in their investment approach lest greenwashing concerns and reputational damage arise, it says.