Market and Investment Insights

CrossPoint Financial PM says upcoming COP26 summit is a key part in incremental process of achieving real impact on climate change

Socially responsible investing has been gaining a lot of traction recently, but it’s nothing new for Brent Vandermeer, portfolio manager and executive director at CrossPoint Financial, iA Private Wealth.

“I was raised to strive to have a positive impact in everything I do. When I started my career in wealth management over two decades ago, it was important for me to ensure that the direction of our capital spoke to what we today refer to as environmental, social and governance (ESG) issues,” he said.

For Vandermeer, events like the upcoming COP26 conference – an annual summit aimed at accelerating progress towards Paris Agreement emissions targets – are critical opportunities to bolster awareness of the increasingly dire consequences of climate change.

The ESG community is anticipating stricter emissions targets to be announced at COP26. Canada recently strengthened its pledge with a new reduction target of 45% by 2030 – a change from its previous target of 40%. The likely knock-on effect will be higher carbon taxes, with the heaviest emitters seeing higher operating costs – and lower earnings – as a result.

While COP26 is one of the most important events on the ESG calendar, Vandermeer cautions that we should not expect it to be a watershed moment that sparks a wholesale pivot. “Events like this keep ESG issues on the front burner for governments and major industries, which is where they need to be. But the process of delivering meaningful results on the way to achieving key climate goals will be an incremental one,” he said.

He also does not expect the event to have a major impact on the markets, at least in the short term. “COP26 may impact valuations of stocks positively in terms of the ‘E’ in ESG,” Vandermeer said. “But it will be one of many ripples that will grow into a wave as businesses, particularly those operating in developed nations, will face mounting pressure to take a hard line against emissions.”

One form that pressure will likely take in developed nations, Vandermeer says, is the withdrawal of subsidies for industries that have long failed to minimize their carbon footprint. Once countries stop enabling those sectors, the playing field will be rebalanced in favour of businesses with good environmental records.

“Aside from recognizing the rising frequency of extreme climate events, the data and quantitative process behind how we measure the impact of ESG investments has undergone significant improvement,” he said. “In the last five years, we have seen a proliferation of quant models and data-driven tools to analyze and assign ESG scores to investments and businesses.”

This represents meaningful progress, as he believes there has been a tendency in the industry to make bold claims around ESG that aren’t backed up by statistical data or academic studies – a phenomenon known as ‘greenwashing.’

In a relatively short amount of time, ESG investing has gone from an industry niche to what Vandermeer believes is an absolute imperative. In his view, asset managers and corporate issuers that are not incorporating ESG in a verifiable way will be left behind.

“I believe ESG investing is becoming table stakes,” he said. “Investors today aren’t just investing for performance; they also want the ability to make an impact beyond returns that aligns with their personal values.”

Vandermeer notes that a transformation is underway in how the investment industry measures the impact of socially responsible investing.