Report on
Responsible Investment Advances
20
23
Take action
for a sustainable future
today
Table of Contents
- NBI's philosophy:
People at the heart of finance and investing - A word from our President and CEO
- A word from our Head
of Responsible Investment - Responsible investing through our open architecture
- The evolution of responsible investment at NBI
- OP4+: ESG and our open architecture governance
- Our vision of responsible investment approaches
NBI's philosophy:
People at the heart of finance and investing
Investing in the power of peopleTM
National Bank Investments ("NBI") is an investment fund management firm committed to manufacturing and distributing diversified investment solutions and services designed to help Canadian investors achieve their financial goals.
As Canada's leading open-architecture provider, we are committed to providing diversified investment solutions with appropriate risk-return payoff that meet investors' changing needs.
We strive to be the best option for investors' portfolios. As a top-tier asset manager and a key partner dedicated to innovation and excellence, we believe that people are at the heart of finance and investing. Now more than ever, we are investing in the power of people.
Fostering a rigorous approach
Over the years, our company and position in an ever-changing market have been defined by our innovative and entrepreneurial spirit. This strong positioning is the basis for numerous initiatives that effect change.
Our multi-channel approach gives investors the opportunity to benefit from a diverse range of solutions and the expertise of the best portfolio managers around the world.
Balancing risk and return
We attach particular importance to risk management in our portfolios by using an optimally diverse mix of styles, factors and portfolio managers.
We believe in making the most of human abilities and interactions to deliver optimal risk-return investment solutions to our clients, their clients, and for the planet.
2023 Report on Responsible Investment Advances National Bank Investments
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A word from our President and CEO
In a world in constant transition, each action taken and decision made today contributes to shaping the destiny of generations to come. It is therefore a privilege to present to you a summary of our progress toward a more sustainable future. The 2023 Report on Responsible Investment Advances reflects our firm commitment to have a positive impact on the world while creating value for our investors.
This year has been characterized by a process to adapt NBI's vision and positioning in terms of responsible investment. Our preferred path to maximize our impact involves serving as a catalyst for change in favour of more sustainable finance. Our approach to achieving this goal involves influencing, mobilizing and supporting our stakeholders.
Among our achievements are reviewing the environmental, social and governance (ESG) criteria in the OP4+ process for selecting and assessing portfolio managers. This was done as part of our determination to fully incorporate responsible investing into the governance guiding the selection of our open architecture partners.
With ESG integration becoming increasingly implicit in our partners' approaches, we wanted to reflect this broader consideration in our assessments. We are therefore now approaching all our pillars from an ESG standpoint, including organization, people, processes, portfolio and performance. We are positive that this approach will encourage our open architecture partners to improve their ESG practices, both in terms of their firm and how they manage portfolios.
Moreover, in 2023, NBI announced that it was among the asset managers who had indicated their interest in the Investi Fund, an initiative from Innocap and Finance Montréal,
aiming to encourage the finance industry to adopt best practices in ESG integration and impact investing. We see this collaboration as an opportunity to share our expertise and draw inspiration from industry best practices.
I truly believe that education and awareness about sustainable finance can help overcome the headwinds the industry is facing. That's why we continued with our training initiatives throughout 2023. More than 1,250 employees from all our advisory channels have now completed an introductory course in responsible investing. In a survey
of our investor clients, 24% of respondents said that they wanted to have a discussion about responsible investing with their advisor. This illustrates the need to continue with initiatives to equip our employees to meet the growing demands of our clients.
Lastly, I want to underscore that this year, National Bank Trust, preferred partner of NBI acting as portfolio manager of several NBI solutions, adopted the Institutional Shareholder Services (ISS) sustainable policy for applying voting rights. This policy aims to promote the support of environmentally friendly business practices, fair labour, non-discrimination and the protection of human rights.
Although we are proud of our successes, we remain aware of the challenges that lie ahead. The urgency to act on issues such as climate change, social inequalities and ethical business practices requires innovation and constant collaboration.
In 2024, we will continue to build on solid foundations while exploring new avenues in responsible investment to contribute to a more sustainable and inclusive future.
Éric-Olivier Savoie
President and Chief Executive Officer
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A word from our Head
of Responsible Investment
At NBI, our commitment to responsible investing not only runs deep but is also driven by a clear mission: to be an influencing force with our stakeholders.
The past few years have been rife with geopolitical complexities, punctuated by tensions and controversies related to the anti-ESG movement, primarily in the United States. At the same time, we have seen a worldwide reinforcement of regulations aiming to clearly define the parameters of what constitutes a responsible investment. Given this media and regulatory pressure, certain firms have opted for greenhushing. This means that they prefer to minimize their communications surrounding ESG.
However, despite this challenging environment, Canadian investors' enthusiasm for responsible investment remains. Indeed, funds focused on responsible investing ended the year with positive net sales,1 one of the few segments to see positive growth in the mutual fund industry.
Responsible investment has established itself as a central pillar of the industry. Many managers and asset owners recognize it as an intrinsic element of their fiduciary duty and a vector for more informed decisions. Moreover, attention paid to investments related to the climate transition intensified, supported by various policies, creating investment opportunities in the transition for a low-carbon economy. The Inflation Reduction Act in the United States is an excellent example.
For 2024, we anticipate four predominant trends that will influence asset management:
- The evolving impact of climate change: the transition to a lower-carbon economy represents both a challenge and an opportunity for investors, with a focus on clean energy and climate initiatives.
- Investors' recognition of natural capital as critical and material: policies supporting environmentally friendly investments, brought forward through global initiatives, will create a context well-suited to sustainable investments.
- Enhanced due diligence in the supply chain: the lessons learned from the COVID-19 pandemic underscore the importance for investors of assessing the environmental and social risks related to supply chains.
- The transformative impact of artificial intelligence (AI): both for companies in a portfolio and for investors, AI opens up new perspectives in terms of analysis and decision-making.
In 2024, given this evolving framework, NBI undertakes to uphold and promote its three priorities: sharing our expertise in responsible investment, influencing the market to encourage more responsible investment practices and acting to offer solutions that address our clients' needs.
Solène Hanquier
Senior Manager
and Head of Responsible Investment
1 The Investment Funds Institute of Canada (IFIC), 2023 Investment Funds Report.
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Responsible investing through our open architecture
Some highlights from 2023 for NBI fund manager firms:1
55%
have ESG objectives incorporated into their compensation plan.
90%
have diversity, equity and
inclusion (DEI) objectives.
70%
are members of Climate Action 100+.
45%
are members of Net Zero Asset Managers.
70%
are planning to publish a report on nature-relatedfinancial disclosures
(TNFD) in the coming year.
600engagement initiatives have been made with portfolio companies, including 37% related to the environment, 26% related to social aspects and 37% related to governance.
NBI responsible investing initiatives have allowed us to:
- Accumulate $4.1 billion in assets
under management in our sustainable investment solutions.
- Train more than 1,250 advisory employees
in responsible investing.
- Collaborate with National Bank Trust for their adoption of the International Shareholder Services (ISS) sustainability voting rights policy.
- Begin monitoring our funds using ESG data taken from the Sustainalytics platform.
- Educate the public with the help of more than 10 communication initiatives about responsible investment.
1 As of October 31, 2023.
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The evolution of responsible investment at NBI
2023
2022
2021
2020
2019
2018
- Alignment of voting rights with the sustainability policy from International Shareholder Services (ISS) by National Bank Trust
- Review of criteria for the ESG pillar of the OP4+ process to be better aligned with the market
- First sales force training on responsible investing
- First progress report on NBI's responsible investment
- NBI becomes a founding member of the Climate Engagement Canada initiative
- NBI commits to direct 5 billion in assets to local managers in the context of the Statement by the Québec Financial Center for Sustainable Finance
- Launch of the first NBI Sustainable Mutual Funds
- Launch of the first NBI Sustainable ETFs
- NBI becomes a signatory to the Principles for Responsible Investment (PRI)
- NBI joins the Responsible Investment Association (RIA) as an associate member
- + pillar added to OP4+ process: ESG criteria are added to the selection and oversight process for portfolio managers
2023 Report on Responsible Investment Advances | 7 |
National Bank Investments |
OP4+: ESG and our
open architecture governance
Our open architecture structure offers an ongoing process of diligence and full accountability. Our oversight is based on a review cycle, called OP4+, in which the organization, people, processes, portfolio, performance and integration of ESG criteria by portfolio managers and sub-advisors are continuously assessed. In 2023, we reviewed the excellence criteria related to the ESG (+) pillar in order to align our position with changes in responsible investing in the industry.
At NBI, we are positive that responsible practices involve more than simply incorporating ESG criteria. It is crucial that portfolio managers in our open architecture tangibly express the efforts they're making to improve their approaches. That's why the new excellence criteria are applied across all pillars: the organization, people, process, portfolio and performance. More specific questions can be incorporated into these broader categories during our due diligence review process. These questions can change over time and vary depending on the manager's strategy.
The OP4+ criteria of excellence in portfolio management
Organization | People | Process | Portfolio | Performance |
Strong organization | Stable team | Emphasis on proven | Optimized portfolio | Strong and |
with top-tier | of investment | management | construction | predictable risk- |
investment culture | professionals | processes to select | that follows the | adjusted returns |
securities, build | investment process | |||
portfolios and | and ensures sound | |||
manage risk | diversification | |||
ESG+ Integration of Environmental, Social and Governance criteria | ||||
Corporate culture | ESG expertise within | Investment process | Consistency between | Measurement and |
fostering responsible | investment teams, | that systematically | the portfolio | management of the |
investment, including | supported by | incorporates ESG | construction and the | portfolio's main |
governance, | dedicated ESG | factors and | ESG integration | ESG risks |
strategies, and | resources | shareholder | process | |
policies guiding RI | engagement | |||
Use OP4+ to influence portfolio managers' practices
In 2023, a portfolio manager partner in our open architecture took a course on shareholder engagement after discussing NBI's requirements in this area for managers of its active strategies.
This initiative allowed the manager to acquire additional tools to engage in dialogues focusing on environmental, social and governance (ESG) criteria with companies represented in the portfolio.
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Our vision of responsible investment approaches
NBI selects a large number of portfolio managers, each of whom has their own approach to responsible investing. They prioritize various objectives, whether it's avoiding exposure to economically undesirable companies or sectors or aligning a portfolio with major themes related to sustainable development. This array of responsible investment methods is the driving force behind the richness of NBI's platform, as it allows the specific traits of each asset class to be taken into consideration.
We therefore respect the management philosophy and investment decisions of portfolio managers, while encouraging them to adopt industry best practices.
Our responsible investment approaches framework
How approaches are presented can change based on industry developments. For example, NBI uses the recommendations of the Canadian Investment Funds Standards Committee (CIFSC) to define its approaches.1
ESG integration
Integrate ESG criteria into the investment process.
Exclusions /
Negative screening
Exclude companies, sectors or even countries, based on ethical or moral criteria.
Engagement | Best-in-class / |
Positive screening | |
Influence issuers' | Invest in issuers |
ESG practices | that demonstrate |
through voting | better ESG |
rights, shareholder | performance |
proposals | compared to |
and dialogue. | their peers or |
a benchmark. |
Thematic
Target investments meeting themes related to ESG criteria.
Impact
Investing with the intention of achieving measurable positive social and environmental impact, in addition to a financial return.
1 Note that these approaches are not mutually exclusive: a portfolio manager can use several approaches for the same product.
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Sustainability is central
to our investment solutions offering
Our sustainable investment solutions
Eager to innovate in terms of responsible investment, NBI has launched in recent years funds focused on sustainable development. They are the first Canadian investment products aligned with the United Nations Sustainable Development Goals (SDGs) in their investment process.
In addition to being aligned with the SDGs, some products integrate other ESG criteria, such as excluding companies deriving a significant portion of their revenues from tobacco, adult entertainment, weapons, and coal.
Whether by investing in government bonds that will be used to finance public transit infrastructure development projects or through buying shares in a company that generates a significant portion of its revenues by developing renewable energy infrastructure, the portfolio sub-advisors must ensure that the underlying holdings create value while contributing to the greater good.
ESG performance of our sustainable solutions
Equity strategies1, 2, 3
Product
Morningstar
sustainability score4
Carbon intensity vs.
index5
- of women on the board of
directors vs. index
Water withdrawal intensity vs. index6
Alignment with the top 3 SDGs7
15.3% | |||||
NBI Sustainable | |||||
Canadian Equity | |||||
ETF (NSCE) | 81 | 238 | 40% | 38.9% | 3,857 | 12,571 | 30.3% | |
NBI Sustainable | |||||
Coverage 92% | Coverage 83% | Coverage 99% | Coverage 39.5% | ||
Canadian Equity | |||||
Fund | |||||
31.2% | |||||
23.7% | |||||
NBI Sustainable | |||||
Global Equity ETF | 100 | 146 | 34.4% | 33.3% | 10,502 | 20,488 | ||
(NSGE) | 15.2% | ||||
NBI Sustainable | Coverage 97% | Coverage 95% | Coverage 100% | Coverage 47.8% | |
Global Equity Fund | |||||
16.5% |
- Data from Sustainalytics as of October 31, 2023.
- The Fund's benchmark index, as disclosed in the prospectus.
- Percentage coverage corresponds to the proportion of securities for which data is available.
- The Morningstar® Sustainability RatingTM is intended to measure how well the issuing companies of the securities within a fund's portfolio holdings are managing their environmental, social, and governance (ESG) risks and opportunities relative to the fund's Morningstar Global Category peers.
- WACI total carbon intensity (tCO2eq/$m).
- Unit of measure: m3/US $m.
- Data as of October 31, 2023, as provided by the portfolio sub-advisors. Aligned companies generate greater than 25% of their revenue from the direct production of products or provision of services that support the achievement of one or more UN SDGs.
2023 Report on Responsible Investment Advances National Bank Investments
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National Bank of Canada published this content on 19 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 March 2024 17:29:02 UTC.