When it comes to integrating sustainable investment principles into investment management, the key is to incorporate those principles into the process from the ground up.
That philosophy put Jarislowsky, Fraser Limited among the top winners of the first Great Canadian ESG Championship, according to President and CEO Maxime Ménard.
“One of the reasons that we won out of the 60 or so participants and were in the top three was based on our process and how we integrate ESG within the whole research platform,” Ménard said. “That came from intentionally investing in ESG by hiring the right people, putting enough energy and dollars behind the process, and making sure it’s fully integrated from a research standpoint.”
The Great Canadian ESG Championship was launched by six philanthropic foundations, one university endowment fund and two private trust funds that wanted to show there is a large amount of capital looking for investment strategies that demonstrably integrate ESG (environmental, social and governance) factors.
The nine co-investors had three goals for the contest, according to its website: “To shine a light on the top ESG integration strategies available to Canadian investors, publicly promote asset managers who demonstrate a robust and innovative ESG integration approach and help other asset owners in making investment decisions aligned with their ESG and financial objectives.”
The co-investors pledged a pool of $104.5 million to invest with asset managers who demonstrated the most robust ESG investment approaches within three asset classes: equity and/or fixed income, alternatives, and multi-asset. The funds were distributed among the seven winners, with JFL receiving mandates for $25 million in the multi-asset category, or nearly one quarter of the total amount available.
One of the reasons that we won out of the 60 or so participants and were in the top three was based on our process and how we integrate ESG within the whole research platform.
For Ménard, the competition was an opportunity for Jarislowsky Fraser – a wholly owned subsidiary of Scotiabank that operates as a distinct business division – to be part of a thoughtful process and open discussion about ESG, and a chance to gauge how the firm is doing compared to its peers.
“We thought, whether we do well or not, at least it'll give us an indication of what we need to work on. And if we do well, it'll tell us that we've done a great job and let’s keep going at it.”
JFL has a long history of advocating for good corporate governance. Stephen Jarislowsky, founder and former CEO and Chairman of Jarislowsky Fraser, co-founded the Canadian Coalition For Good Governance, an organization representing major institutional investors to promote good corporate governance practices in Canadian public companies. Ménard sits on the board of the CCGG and is Chair of the Finance & Audit Committee.
Ménard said that given that history, it made sense for Jarislowsky Fraser to make a conscious decision several years ago to “double down” on its investment in ESG research, reporting and solutions.
“It’s a whole mindset. When you look at companies both from a traditional and an ESG standpoint, you are able to make investments based on a more complete set of data, and we truly believe that supports better long-term investment decisions,” he said.
The challenges were not insignificant. The G part of ESG — governance — has been reasonably well understood for decades, helped by more regulated disclosure, Ménard said, but the E and the S —environment and social — can be tougher nuts to crack.
“When you get into the environment and social aspects, and how to integrate those into your investment thesis, many challenges exist,” he said.
“It means having good metrics, good measurements, good ways to report it. And companies need to be equipped with the ability at the board level to oversee and guide what management needs to work towards in terms of getting to the E and S goal posts, or at least identify opportunities for improvement.”
The idea is not to be restrictive, said Ménard. In order to influence companies to evolve and become more socially responsible, more environmentally friendly or have better governance, you certainly have a much greater voice and have a better ability to influence the outcome if you’re a shareholder.
“We understand that everyone works within a business environment that is evolving and requires a return on investments,” he said. “What we try to do is to understand where the company is at in terms of ESG and then work with goal posts, ideas, and share best practices so that management and boards understand that from a shareholder perspective, we're going to be patient enough, responsive enough and also supportive enough for them to make the right changes over the long term.”
Winning the Great Canadian ESG Championship has only strengthened Jarislowsky Fraser’s commitment to the ESG principles that earned it one of the top positions in the competition.
“You can never say you’re one of the best until you actually measure yourself relative to others,” Ménard said. “This has really helped our team to realize that all the work that we've put in actually measures up very well versus the competition, not only in Canada, but globally.
“In order for us to remain a leader within the ESG market, we need to keep investing in it, continue to use ESG-related data to uncover differentiated insights, engage with the companies we invest in to enhance sustainability practices and ultimately provide the right solutions for our clients.”