Ambika Avasthi
York University- Schulich School of Business
Charles Cho
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The growing focus on sustainability and risks associated with climate change resulted in a large Canadian bank reaching out to Fiera Capital to create and align an ETF to UN-developed 17 Sustainable Development Goals with the SDG goals as a key metric for investment decisions. The asset manager helped create one of the first frameworks of Canada to align the ETF to UN SDG goals based on a business perspective.
Fiera Capital is a Montreal-based asset management firm with approximately $188 billion in AUM as of December 31, 2021. Being one of the leading investment managers, they provide services across multiple asset types to institutional, financial intermediary and private wealth clients across North America, Europe, and key markets in Asia.
The firm adopted a responsible investing policy 15 years ago in the form of the firm’s first proxy voting policy. Even with a sophisticated responsible investing policy, Fiera Capital has a decentralized approach to adopting sustainability initiatives and it is up to each team to adapt and direct their independent sustainability initiatives based on investment mandate requirements. Since client requirements and mandates have changed so much, adopting individual policies rather than a firm-wide policy has been considered the best approach by the firm.
Gokul Ullas joined the firm and the large-cap equities team in 2019 and is a Responsible Investment Analyst. His background is in Chemical Engineering, and he did his Master's in Sustainability Management from the University of Toronto. While studying at UofT, he interned and worked part-time with Fiera Capital. When he joined Fiera Capital as a full-time employee, he was considered the right person to head this behemoth project of integrating SDGs as a guiding investment metric for the new ETF.
He started by creating a systematic approach and recognizing relevant data metrics, building frameworks for data analysis, and assessment of businesses the company is engaged with based on the 17 SDG goals. This framework which aligns business practices to SDG is one of the first in Canada.
The sustainable development goals represent an international consensus on urgent calls for action for a sustainable future. The SDGs are further split into 169 targets; however, these targets were framed with an international and national perspective, not a business perspective. Since all the 169 targets do not align with businesses directly or indirectly but require more government policy change, the team shortlisted 85 investible targets based on which businesses could be assessed on their products, services, and business practices.
After shortlisting the 85 trackable and relevant targets, the team went through each company in their investible universe to assess the alignment of the businesses’ products, services, and operations to these targets. One of the main criteria is revenue alignment which means, how much of their revenue comes from aligning to these targets or deviating from them. Some companies, for example from the oil and gas industry, are naturally highly exposed to coal which can go against the target of using renewable energy, relating to SDG 7. "Based on portfolio weights, we looked at creating SDG alignment across our entire portfolio"
Considering Fiera Capital's long-standing approach to responsible investing, a large Canadian bank approached Fiera Capital’s Large Cap Equities team to build an ETF fund with Sustainable Development Goals as the main aligning criteria.
Gokul Ullas is extremely politically engaged and volunteers during elections. He is always looking for an objective beyond work. Knowing that government has a set target and defined objectives to achieve net-zero, Gokul tries to contribute to the same through work or by educating people around him. He has taken a keen interest in educating his teammates and the wider audience by posting educational articles through Fiera’s website and social media pages. He believes in bridging the knowledge gap in a step-by-step manner to fully incorporate sustainability initiatives across the organization.
“You ideally want a 50% representation of women and men across most job profiles around the world, safety record, you ideally want zero injuries and fatalities in the business; these objectives exist. Financial companies and investors are usually very detached from this reality because you are always two steps away from what actually happens. You invest in companies who have these employees, so when you think about the employees directly and what capital can do to improve their situation then it should not be too difficult to be inspired.”
Fiera Capital has been able to engage and understand the businesses they are invested in, in greater detail and are able to adapt to the changing trend of encapsulating SDGs in investment criteria as highlighted by major clients, through this initiative.
A low SDG score does not mean the firm divests from the businesses. Since SDGs are not designed to include a financial sector and include subjectivity, Fiera Capital tries to understand businesses holistically and considers multiple metrics and parameters apart from SDG alignment to make investment decisions. The firm believes in having a robust engagement policy rather than divestment.
The direct impact and benefit from adopting this framework was the increased capital flow from the Canadian bank into the ETF by a significant portion, since there was a better understanding of all business practices of the ETF investments.
The indirect impact is the holistic approach of assessing the businesses Fiera Capital engages with and not looking at an investment with a traditional financial return focus. The metrics help understand the impact of business practices on various other types of risks like reputational or regulatory risk which may not always have a tangible metric for assessment. For example, the frameworks help highlight the sustainability risks associated with an increase in carbon tax for a business in question, or the impact of climate change on a business’s assets that are close to flood-prone areas. Such parameters are now incorporated into the framework and have taught the team to assess the company’s societal and financial standing.
The firm incorporates an engagement policy rather than a disinvestment policy. Gokul also created a tool that links directly to the Bloomberg terminal and acts as a red flag indicator in case of severe misalignment with the SDG goals. It helps determine if the investments in a particular portfolio meet or exceed a particular threshold. Based on this Fiera Capital reaches out to the businesses highlighting the red flags, so corrective actions can be taken by them to fix the metrics.
“Through capital mobilization and through engagement you have a lot of ability to make a difference. What we are doing right now is using all this data to inform our engagement practices to make companies them better corporate citizens.”
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Gokul Ullas, Responsible Investment Analyst
Fiera Capital Corporation is an independent asset management firm with a growing global presence and approximately $188.3 billion in AUM as at December 31, 2021. They deliver customized multi-asset solutions across public and private market asset classes to institutional, financial intermediary and private wealth clients across North America, Europe and key markets in Asia. They strive to be at the forefront of investment-management science and are passionate about creating sustainable wealth for clients.