Highlights

• Canada's interest in sustainable investments continues to grow year after year compared to the US.
• However there are several problems that need addressing to make sustainable investments a go-to option for more investors.
• Greenwashing, transparency, and the lack of lucrative investment options are some of the pressing options.

While Canada is more progressive minded in cases of ESG compared to the US, Canada is still trailing behind in overall adopting these values in investments.

That much is clear by the challenges that institutional investors are facing in proving the value of sustainable investments.

Environmental Issues

While environmental concern is there, many Canadians aren’t understanding the nuances of them. Not only that, but investors aren’t able to currently measure the impact investing in highly rated ESG companies has all that well.

For example, York University is a limited partner in an infrastructure fund. While that fund’s scores in Scope 1 and 2 carbon emissions are very low, the score it’s rated for Scope 3— emissions as a result of activities outside of a reported organization—remains high.

In other words, this fund has a supply chain issue in terms of reducing carbon emissions. A problem that a lot of businesses all across the globe are facing.

To Canadians credit, ESG factors are increasingly becoming part of an investment policy, however, many are tripping up over the details. Many investors are fixated on reducing Scope 1 or 2 emissions, which are emissions related directly to the companies themselves.

But we fail to consider Scope 3 emissions, which are indirect in some cases, but are still linked to the original organization. All the while, investors who are familiar with Scope 3 emissions know the challenges they face.

They know projects and companies can’t be fossil- or carbon-free. But to get people to focus on all three scopes of emissions rather than the first two involves reframing the conversation and getting down good and strong messaging.

And that is very challenging to do given how far talks about environmentalism and global warming as a whole have gone.

Sustainable Ideas Unsustainable

Another issue with sustainability right now that makes it difficult is the lack of financial gain or infrastructure to make scalable efforts economically appealing. While industries like solar, wind, and water energy are growing, they’re not addressing the influx of carbon in the atmosphere.

Trees and tree planting programs can help with carbon capture, but we can’t rely entirely on planting more trees to solve our problems. Solutions like Direct Air Capture machines—effectively gigantic fans that capture carbon from the air —are nice, but they’re not profitable.

For perspective, last year the US put $3.5 billion into Direct Air Capture —the largest investment to date—and out of the 130 sites it hopes to create, only a handful of those stations are opened up. There are roughly 20 of these plants across Canada, US, and Europe, with over 100 still in development stages.

Part of that issue is the massive costs, even with government tax credits, that these companies face. These alone would deter investors from wanting to invest in these companies.

Some Sustainable Investment Projects Are Out Of Reach

And all of this can be wrapped up as well by the sheer fact that companies simply can’t always do more. Similar to the idea of planting trees, companies can’t just plant trees everywhere. One has to consider the surrounding environment and whether that tree can live there. There are areas where trees simply can’t grow either.

Similarly, companies, universities, and others who have stakes in environmentalism and want to make more sustainable investments may not be able to delve into renewable energy assets like wind, solar or geothermal. This could be a matter of costs, time it’ll take, carbon storage, or something else.

Betting On Ingenuity Of Humanity

In the end, while Canada’s struggles are nothing new to other ESG challenges, it’s fair to say that what’ll move the ball forward for us all is further human creativity. Protecting the trees we have now while planting more is a start.

But so is investing in carbon capture and improving it.

So is switching to electric vehicles, making salt-based batteries, and reducing the amount of cars on the road altogether.

And it’s coming up with new innovations that can build upon these existing models.

Sustainable investing can of course help in this regard as well, but what can also be progressive in investing behaviour for the future is to invest in companies that are looking to help solve these issues not just for the possibility of making money, but because they’re working to make the planet more livable.

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