Want to invest in Canada's clean economy? Good luck

 August 15th 2019

As of last year, close to one thousand institutions with three per cent of global savings under management have engaged in some form of divestment from fossil fuels.

In June 2019, Norway’s parliament unanimously voted in favour of directing its $1.06 trillion Government Pension Global Fund (GPGF), the Norges Bank, to divest more than $13 billion from fossil fuels while dedicating more investments to clean technologies.

The caveat is that this will apply only to companies that are exclusively in the business of upstream oil and gas production and some coal sector investments. The GPGF is Norway’s sovereign fund derived from oil industry revenues to assure Norway has a steady source of revenues in the post-oil world.

Shell has expressed concern that the growing fossil fuel divestment movement could impact on the company’s performance.

Here in Canada, Export Development Canada has issued more than $2 billion in Green Bonds in the last half decade, however this option is only available to institutional investors. The Business Development Bank has a minimalist allotment in Budget 2017 through to fiscal year 2021-22 for clean technologies without opportunities to Canadian citizens to enhance the BDC clean tech activity.

Should a Canadian citizen want to make investments which exclude the fossil fuel sector or divest from fossil fuels, and is inclined to give priority for Canadian companies, they appear to be out of luck.

The problem is that, although there are a wide variety of socially responsible investing (SRI) and environmental, social and governance (ESG) criteria funds in Canada, hardly any of these funds offer such a choice. And the options for priority for Canadian assets in this category are only slightly above zero.

A glance at the top ten investments of each SRI and ESG fund portfolio illustrates the problem. Typically, the portfolios of these funds include investments in one or more other financial institutions. This means that while one is investing in an “ethical fund” the third-party investors among the top holdings of a given portfolio are free to invest your money in anything they want, contrary to the good intentions of a purchaser of this stake in the fund.

To illustrate, should one want to give priority to placing one’s “ethical” money in Canada, there is the IA Clarington Inhance Canadian Equity SRI Class. The top 10 holdings for this portfolio include RBC; TD Bank; CIBC and the Scotia Bank. All of these banks are among the top 10 banks listed in the US as those that most heavily invest in fossil fuels. RBC tops the list for tar sands development.

The IA Clarington Inhance Global Equity SRI Class top 10 portfolio investment include JPMorgan Chase & Co. and Visa. JPMorgan Chase is a major investor in Arctic oil and gas projects, liquified natural gas, and ultra-deep-water oil and gas extraction. Hence, the investor in this fund risks placing a significant portion of one’s money in fossil fuel assets.

One of Canada’s largest ESG group of funds are those of NEI which claims to be Canada’s leading provider of Responsible Investment (RI) solutions. Looking at the top 10 investments of NEI Canadian Dividend Fund Series F and PF, one finds the TB Bank, Scotia Bank, Power Corporation, Enbridge and Canadian Natural Resources otherwise known as Canadian Natural.

With a Google search, Canadian Natural is described as “one of the largest independent crude oil and natural gas producers in the world.”

The NEI Canadian Equity Fund Series F and PF is no better. For this fund, the top 10 comprises the TD Bank, Scotia Bank and Sun Life Financial.

One would hope that Canada’s Desjardins Group, the largest financial cooperative in Canada, would be different. Desjardins boasts of its environmental funds, but even these funds also leave much to be desired.

The Desjardins Societerra Environmental Fund top holdings entail investments in MasterCard and PayPal, which are financial institutions of another form. Canadian assets represent 8.5 per cent of the portfolio whereas the U.S. accounts for 55 per cent of the geographic allocation of the fund investments.

The most dedicated Desjardins fund to the green economy is the Desjardins Societerra Cleantech Fund. However, the geographic allocations have Canada associated with five per cent of assets while the U.S. allotment is 36 per cent.

There is one investment entity for individuals that want to invest “100 per cent Canadian green,” CoPower which issues Green Bonds. These bonds come in the form of private fixed bond rates and focus on small Canadian clean energy and energy efficiency projects such as LED lighting retrofits for condos; solar farm initiatives; and the conversion of a residential buildings to geothermal energy.

True, every effort to go green is a noble gesture, but the initiatives of this small fund are far from measures for a transition to a green economy. Worse, CoPower sales of Green Bonds are currently closed.

Frustrated with the market choices to invest in Canadian green products, the alternatives are purchasing shares in Canadian clean techs companies and small cap funds.

For the former, the choices on the Canadian stock market are very few, Canada never having had a federal or provincial government which provided significant portions of annual budgets to the development of clean tech sectors.

Indeed, many clean tech firms in Canada have been transferring their clean techs initiatives outside Canada or risk losing their global competitive edge.

Small cap investments are a last resort in that many furnish alternatives to fossil fuel sector financing but to the best of my knowledge, none are slanted favourably towards clean techs.

A case in point is the NEI Canadian Small Cap Equity RS Fund Series F and PF for which the 10 leading investments encompasses IA Financial; Secure Energy Services; AltaGas; and Superior Plus. Secure Energy Services serves upstream and oil and natural gas producers. AltaGas, as the name implies is a natural gas company, which among other things is involved in fractionation in the U.S. Marcellus/Utica basins. Superior Plus markets and distributes propane and distillates.

As for what is done with our tax dollars, at the April 2017 G20 meeting, Trudeau agreed to end fossil fuel subsidies by 2020. This obviously is not going to happen since Budget 2019 had insignificant content on the matter.

Yet the Government of Canada did acquire the assets of the Trans Mountain pipeline for $4.5 billion and it remains unclear whether the federal government will foot the tab for the expansion of the pipeline. That tab could be anywhere from $7.4 billion to $20 billion, depending on who is doing the calculating.

Not surprising is that the U.K. Overseas Development Institute ranked Canada as the worst on fossil fuel subsidies.

This leaves the choices for going Canadian green to changing Canadian voting habits and doing what one can on reducing one’s personal environmental footprint.

As per the information described on “ethical funds” in Canada, despite the Trump administration hostility on climate change, the U.S. furnishes a much more favourable landscape for clean tech investments. This is in part a reflection of the existence of progressive states like California and the residual impacts that remain from the Obama years.

It would be nice if the Government of Canada issued green bonds to individuals wishing to invest in Canada’s own clean tech firms.