Advisors call new fund framework a good first step toward clearer ESG conversations

A new responsible investing framework from the Canadian Investment Funds Standards Committee (CIFSC) will save advisors time and provide a new tool to help clients understand the approaches used in ESG funds, advisors say.

The CIFSC released a framework last week to provide clarity around responsible investments (RI) and help advisors meet their clients’ needs.

The framework describes six RI approaches — ESG integration and evaluation, ESG thematic investing, ESG exclusions, impact investing, ESG-related engagement and stewardship activities, and ESG best in class — with definitions for each.

For example, the framework describes ESG thematic investing funds as identifying “disruptive themes” such as board diversity and clean tech, and investing in companies that stand to benefit from them.

CIFSC members will go through their respective databases to identify funds that use any of the six RI approaches. The end result will be a consolidated list of funds on the CIFSC website by the end of this year, broken into the six categories, said Ian Tam, chair of the CIFSC. Some funds may fall under more than one category.

Tam noted the Investment Industry Regulatory Organization of Canada’s December 2021 guidance on ESG and KYC as a contributing factor in developing the framework, as advisors are expected to note a client’s ESG preferences.

“You don’t have to do anything with that information — you just have to show that you’ve asked the question and have taken notes on how that client wants to invest. But from there, the next logical step is ‘Let me try to find some responsible investments that might be suitable,'” Tam said.

“That’s really what we’re trying to solve. It’s very difficult right now to understand which funds are ‘responsible’ and which ones are not… We’re going to do some of that work [for you].”

Carol Smith, financial advisor at Desjardins Financial Security Independent Network, said the framework is “headed in the right direction” of assisting advisors and their clients with ESG and RI investing.

“With funds categorized by RI approach, I believe it will help advisors reduce the amount of research time required to begin fund comparisons,” she said. “This resource could also help advisors to comply with recent client-focused reforms like know-your-product.”

Peter MacIntosh, financial advisor at Gibsons, B.C.-based MacIntosh Financial Group, said the framework would help him explain funds to clients.

“This gives advisors the tools to be able to say exactly what these approaches are, based on what the CIFSC is saying they are. It just helps define things a little better,” he said.

While the framework identifies how different ESG funds fall into the six categories, Smith said, “it’s not going to be the ultimate solution because there’s just so many funds and so many classifications of ESG.”

Smith said she’d like to see a “one-stop-shop” for ESG and RI where advisors can identify the ESG investment approach alongside fund ratings and investment performance.

Performance ratings will continue to be left to the individual data providers that make up the CIFSC membership, Tam said.

MacIntosh also said he’d like a resource with all the fund data in one place.

“That’s where we need to go, beyond just knowing what the names of the funds are…to be able to compare apples to apples,” he said.