As well as divesting from the oil sands, it’s possible to have greater impact by directing your investment to renewables. But there’s some confusion about what investing in renewables actually means, so let’s start by clearing that up.
Environmental, social and corporate governance (ESG) funds are the most commonly traded funds which include renewables, and tend to focus on:
1. climate change and sustainability;
2. social concerns such as human rights, diversity and ethical trade; and
3. corporate governance such as management structure and employee rights.
In practice there are many different ESG funds, and not a lot of agreement on what constitutes a “green” fund. Some funds are “greener” than others. Asset managers often rely on ESG ratings agencies to assess, measure and compare the ESG performance of companies, so may not be completely up to speed with what investments are available.
Nevertheless there are investments out there that are really green, and ESG investments quadrupled in 2020. There are a growing range of fund managers offering products that access clean energy and climate solutions investment opportunities, but diligence is required. A 2016 survey of US Sustainable Responsible Investors (SRI) found over half manage portfolios that are entirely free of fossil fuel extraction companies, although the number of fossil fuel free investments has probably increased since then.
You can find more details of responsible investment opportunities here – some of the funds listed exclude fossil fuels.
MSCI found that from 2010 to July 2017, the indexes which excluded fossil fuels such as the “MSCI ACWI ex Fossil-fuels indexes” performed better in terms of performance, risks and returns than the parent index. Some of 2020’s best performing stocks on the Toronto Stock Exchange (TSX) are renewable energy companies. S&P/TSX’s Renewable Energy & Clean Technology Index has risen by 38% (to November 2020), while the comparable benchmark ‘energy’ index has fallen by 38%.
Green bonds are another option that is increasingly available. The global bond market is the world’s biggest market at some US$100 trillion, so any move to green bonds is going to help the climate transition. Green bonds are defined as fixed income securities that raise capital for a project with environmental benefits. The majority issues so far have been climate bonds, meaning that the money raised is invested in climate change initiatives. Most green bonds have a fixed rate of interest and are redeemable in full on maturity, or are asset-backed securities tied to specific green infrastructure projects. In 2018 some US$167 billion in green bonds were issued globally.
Investment in green bonds has been growing in Canada, led initially by Ontario and Quebec but now diversifying to include — among others — CoPower, the City of Ottawa, and Manulife Insurance. They are available to individual investors through online platforms such as CoPower and Solar Share; a growing number of investment funds are offering green bonds, including the SociTerra Environmental Bond Fund.
For more details see How to Divest Invest: A Guide for Institutional Investors