Canada’s Sustainable Investment Market Expands with New Fund Offerings

Canadian investors committed to sustainable practices are finding an increasingly diverse array of options, even as the market faces notable headwinds. The second quarter of 2024 witnessed significant developments in the Canadian ESG (Environmental, Social, and Governance) investment landscape, marked by both record growth and diversification.

Despite experiencing a substantial outflow of C$2.1 billion, largely due to the withdrawal of a single institutional investor from the BMO MSCI USA ESG Leaders ETF, sustainable fund assets in Canada reached an unprecedented C$61 billion by the end of Q2 2024. This figure represents a remarkable 19.6% increase since March, underscoring the sector’s resilience and the growing interest among investors. Notably, 29% of these funds have secured a top quartile ranking within their peer groups, demonstrating strong performance in a competitive market. Sustainable allocation funds were particularly successful, with 60% outperforming their category averages.

The growth of sustainable investing is also reflected in the expanding fund offerings from Canadian asset managers. National Bank has introduced a new six-fund target risk lineup, while Desjardins launched its seventh sustainable bond fund in just two years. These new funds adhere to the Responsible Investment Framework set by the Canadian Investment Funds Standards Committee, focusing on approaches like ESG Best-in-Class, ESG Thematic Investing, and ESG Exclusion, which highlight a commitment to responsible investment practices.

The Canadian sustainable fund market has also become increasingly competitive. As of June 2024, no single asset manager holds more than 20% of the market share, a significant shift from 2019 when NEI Investments dominated the space with over 50%. This diversification is indicative of a more dynamic market, with firms like Desjardins, National Bank, Mackenzie, and iShares emerging as key players, each offering a broad range of funds across various asset classes.

Looking forward, the evolution of sustainable investing in Canada is expected to continue, with institutional investors and balanced funds playing a pivotal role in shaping future trends. Asset managers remain committed to expanding their offerings, providing investors with more opportunities to align their financial goals with ESG principles.