The Future of Impact Investing in Canada

investment Women Leaders

Published on April 5, 2022

Takeaways

Impact investing is increasingly important as both consumers and stakeholders alike are starting to prioritize ESG concerns.
The energy industry in Canada has a great opportunity to capitalize on impact investing by innovating on greener technologies.
Impact investment will increasingly cover all asset classes and become less siloed in the way it is allocated.

Action

Capital holders in Canada have the power to drive impact investment forward by ensuring their money goes towards initiatives that are beneficial for society and the planet. At the same time, Canadian businesses must be ready to cater to the preferences of impact investors.

My name is Geeta Sankappanavar and I am the CEO of Akira Impact. I believe investors should always understand the lens with which they view the world in order to understand the biases we all bring to it. I am a serial entrepreneur, business builder, investor and allocator. Recently, I took two companies public. I also ran a billion-dollar energy and infrastructure investment firm and I also care deeply about the world we live in and the people within it. I chair the Board of Governors for the University of Calgary and I have served on the board of UNICEF Canada.

What is impact investing and how does it work in the energy and infrastructure space?

Impact investing’s definition is evolving. It used to be more philanthropic in nature. Now, impact investing is about leveraging the power of capitalism to create a world we want to live in and create positive economic returns.

Today, ESG is the most popular impact framework. It stands for a focus on environmental, social and governance considerations. It is about companies and capital supporting multiple stakeholders and not just shareholders.

“Global ESG assets are currently worth $38 trillion and are on track to exceed over $50 trillion in the next couple of years.”

Why should you care as an investor, business leader or individual? You should care about impact investing because global ESG assets are currently worth $38 trillion and are on track to exceed over $50 trillion in the next couple of years. This is more than a third of projected total assets under management, according to Bloomberg.

Green Impact Partners (GIP), at which I am an investor and chair of the board, is a green energy infrastructure company listed here in Canada. They are developing a portfolio of renewable natural gas (RNG) assets across North America. RNG pertains to the environment portion of the ESG framework. It is part of the circular economy, where companies take farm waste and convert it into renewable natural gas. This results in significant de-methanization and positive environmental outcomes. It is even better than solar power, which typically produces a carbon intensity score (CIS) of +50 while RNG produces a score of -200 to -300. You can sell RNG in the US for north of $60 a gigajoule (GJ), and in Canada, you can execute an infrastructure contract for 20 years with an investment-grade counterparty for over $25 a GJ.

This is an example of what you can do for the planet and the people who live within it while also making money for yourself.

How is impact investing evolving in Canada?

It is absolutely critical for Canada to get this right. Our nation stands at an inflection point. Three of our largest industries are mining, natural resources and manufacturing. As a country of approximately 38 million people, we do not have the breadth and depth of capital markets to fund all of our business activities. Therefore, we are reliant on our ability to attract capital from outside our borders. We need to leverage the incredible entrepreneurial mindsets and talents in our country to reimagine our industries to be better, more sustainable, more community-oriented, more supportive and more inclusive. Canadian businesses need to understand the evolving mindset of the impact investor and participate in that evolution. It is not just the right thing to do; it is also critical for our nation because it is good business. It will allow our companies to attract talent and capital that shares the same values that they do.

There are two primary trends in impact investing that are interesting. One is that impact investing is no longer only targeting a single asset class or sector. Now, it is a lens from which to view all asset class investing. The second trend, which is more recent and probably very nascent, is a shift from thinking about impact investing or ESG from a passive screen’s perspective, which only looks at corporate behaviours, to actually thinking about them as a way to drive active and measurable outcomes.

“Over the next decade, every single asset class will be tied to impact and its ability to generate measurable social and environmental outcomes.”

When it comes to the issue of asset classes, impact investing needs to be thought of as a way to measure and allocate capital across all existing and traditional asset classes. In terms of where its future is in Canada and all over the world, my view is that over the next decade, every single asset class will be tied to impact and its ability to generate measurable social and environmental outcomes. Those who do not recognize this and adopt it will be left behind.

It is fascinating to think about who is driving this change. It started with the millennial generation, which led the charge on this destructive mindset by demanding an alignment of thinking about the planet and the people within it with corporate activity. They have driven increased investment in this space and driven behaviour change. This past year, we saw the largest number of inaugural ESG reports by companies across every single industry on the S&P. Millennials will inherit $24 trillion this decade via wealth transfer, so imagine the impact they will make.

Almost 90% of millennials expect impact and ESG factors to be considered before an investment professional recommends an investment. These are numbers that you cannot avoid or ignore.

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How has the Canadian energy sector responded to impact investment?

The Canadian energy sector has been abandoned by not just the national government of Canada but also by global sovereign institutional and private capital because it does not align with their vision of ESG. Therefore, the Canadian energy sector is largely funding itself right now with cash flow and conforming bank debt. The industry is just not big enough in terms of individual companies to invest in renewable energies and other technologies. There is a significant opportunity in Canada to leverage the technology and talent that exists in our traditional energy sector to help drive the energy transition. The intersection of that is going to be around regulated carbon offsets and verified voluntary carbon offsets.

The future of the sector will be affected by the fact that we are not supporting the Canadian ethos of ethical oil. We are not supporting industries that are actually supporting inclusiveness, diversity and the communities they are within. These communities are the best environmental stewards in the world per marginal barrel. We have tarred all barrels by the same feather.

“Canada needs to support all the new entrepreneurs in cleantech and sustainability because the people who built the oil and gas industry can help diversify Canada’s economy.“

We need to help our industry transform itself as it goes, but it is important to remember that size matters. When you are a small energy company in Alberta, you do not have the capital to be able to invest in renewable energy. As such, we have to be supporting this industry as it winds down. Canada needs to support all the new entrepreneurs in cleantech and sustainability because the people who built the oil and gas industry can help diversify Canada’s economy.

Who and what would you pitch to increase impact investing in Canada and make it more accessible?

I would definitely not pitch the Prime Minister as he does not understand that the single biggest driver of creating positive social impact is a strong economy to ensure jobs for all. Instead, I choose to pitch Canada’s largest capital allocators. They understand their own stakeholder dynamics and desires. They should allocate their capital through a lens that will help them make their money matter more. Align your investment lens to generate measurable positive environmental and social outcomes along with the positive financial return that you seek on behalf of your shareholders. This can be done across every asset class in every sector. Those who have capital have the most power to start making their money matter more. Impact investing would allow them to achieve their investment objectives and outcomes while also building the world that we all want to live in.