More and more Canadian organizations are seeking to make consumer and investment choices grounded in sound ESG (environmental, social and governance) reporting and disclosure. As such, the need for financial professionals with a unique skill set we’re calling “sustainable finance” is greater than ever before.
Sustainable finance refers to any form of financial service integrating ESG criteria into business or investment decisions for the lasting benefit of both clients and society at large. While this is now considered a strategic board and executive-level priority for most Canadian organizations, ESG has only popped up on many of their radars within the last few years. With the sustainable finance landscape quickly changing, sustainable finance professionals are in a unique position where they can write their own ticket while supporting a better future for Canadians.
As outlined by a recent report by Deloitte, Toronto Finance International (TFI) and the United Nations-convened Financial Centres for Sustainability (FC4S), developing sustainable finance skills and talent within organizations is important and materially impactful to clients, customers, people and society at large. The risks and opportunities that ESG factors pose for portfolios and the need to improve asset allocation decisions central to clients’ success are accelerating the need for action.
Canada, like most countries, has made a commitment to achieve net-zero greenhouse gas emissions by 2050. On March 29, 2022, Prime Minister Justin Trudeau additionally unveiled Canada’s 2030 Emission Reduction Plan, which outlines $9.1 billion of spending to cut emissions across different industry sectors. This plan supports the emissions reduction target of 40% to 45% by 2030. Key policies of the plan include reducing the emissions of the oil and gas sector by 42% from its 2019 level, investing $2.2 billion to support the energy transition in Alberta, Saskatchewan and Newfoundland, and funding $1 billion toward a national net-zero buildings plan by 2050, among other measures.
With Canada’s world-leading financial sector and strong capacity for innovation, Canada has the opportunity and the means to stand among global leaders as a decision-maker rather than a decision-taker in the transition to a low-carbon economy. Specifically, Canada’s financial services industry (FSI) has an important role to play in achieving Canada’s net-zero commitments. Collaboration between business, government and post-secondary institutions will be key to realizing our collective ambition of a sustainable future.
“Approximately two-thirds (68%) of organizations currently face sustainable finance skills shortages with further upskilling and recruitment required.”
Despite broad awareness of the term “ESG” across governments and businesses alike, there is a growing gap between the current sustainable finance talent and the skills needed in the future. Data from the aforementioned report shows that respondents unanimously agreed that the development of sustainable finance skills and talent are important – 90% of respondents indicated that sustainable finance is either already central to almost everything they do, becoming integral to much of what they do or playing a growing role. However, these skills are scarce: approximately two-thirds (68%) of organizations currently face sustainable finance skills shortages with further upskilling and recruitment required. Overall, meeting the demand for sustainable finance skills with the current supply and pipeline of talent will become increasingly difficult.
Due to increasing pressure to respond to climate change, the sustainable finance skills in greatest demand relate to the “Environmental” component of ESG, with “Social” gaining prominence. This demonstrates that climate issues currently pose a significant risk to companies but their connection to social issues cannot be overlooked. The pandemic has highlighted the need to integrate social factors more broadly into business strategy, and many organizations are keenly focused on employee well-being and diversity, equity and inclusion as a way of attracting and retaining top talent. The latter is particularly timely with the Great Resignation being felt by organizations across the country.
Currently, many organizations are taking a siloed approach to Environmental, Social or Governance issues, and this could have detrimental effects. For instance, when organizations make decisions solely focused on climate, they can overlook the social impact and inadvertently affect their overall ESG strategy. As organizations move toward their targets to be net-zero by 2050, this concern is top of mind.
“Many organizations do not have any formal internal upskilling programs and are not aware of external training opportunities. “
If the Canadian and global financial markets cannot find the right people to manage their products and make decisions effectively, they will be disadvantaged as their teams will be making decisions with incomplete skills and knowledge. Upskilling existing talent bases and more training programs will be critical, yet many organizations do not have any formal internal upskilling programs and are not aware of external training opportunities. Other factors limiting the development of sustainable finance skills and talent in Canada are competing internal priorities, lack of coordination and inadequate training budgets.
Fortunately, sustainable finance is not necessarily about developing an entirely new set of skills and competencies. It is about supplementing existing finance skills with risk, data management and ESG competencies. The ideal sustainable finance professional has FSI and ESG experience, and multidisciplinary skills that can be easily adapted to the changing environment. Other core competencies in the field include having baseline technical knowledge, knowledge of sustainable finance frameworks and regulations, knowledge relating to STEM disciplines and an ability to conduct audits on ESG matters. As seen in Europe and other jurisdictions, sustainable finance skills related to disclosure and reporting become more in demand once regulation increases.
Addressing the sustainable finance skills gap requires an integrated, multidisciplinary approach. This means upskilling existing finance professionals, including corporate financiers, tax advisors, and risk and audit teams on ESG criteria, as well as introducing new skill sets from a varied set of disciplines to ensure Canada’s talent pool is developed to meet the ambitions of future FSI stakeholders. Addressing the gap between existing skills and those that will be needed now and into the future requires collaboration and action among post-secondary institutions, financial employers and governmental/regulatory bodies alike.
First, financial services organizations should seek to better understand their current and future sustainable finance talent needs, plan to upskill their current employees accordingly and work with post-secondary institutions and industry associations to establish programs that are adaptive and responsive to the sector’s changing requirements.
Financial services organizations should also work with peers to publish a classification system – or taxonomy – of sustainable activities, a disclosure framework and investment tools to provide consistency and comparability across sustainable finance. This will provide greater clarity around which specific sustainable finance skills are required.
Second, governmental and regulatory bodies should consider not only how to formulate policies to drive the transition to a low-carbon future but also how to provide funds for job creation, training and development, and support for upskilling.
Governmental bodies are also in a good position to roll out an awareness campaign to highlight the urgency and importance of sustainable finance skills and talent given the action that is required today in order to achieve climate targets by 2050.
“Post-secondary institutions – including universities, colleges, and technical institutes – should consider how to weave sustainable finance into their educational programs across a variety of disciplines.“
Third, post-secondary institutions – including universities, colleges, and technical institutes – should consider how to weave sustainable finance into their educational programs across a variety of disciplines. They should also integrate sustainable finance into professional education and continuous professional development courses and explore the development of micro-credentials to address the urgency.
While some of this may seem niche, supporting sustainable finance skills and competencies for current and future professionals will be critical for the future of the Canadian financial services sector and the Canadian economy more broadly. With sustainable finance becoming a mission-critical core competency in Canada’s journey to lead the global energy transition, properly equipped and skilled ESG professionals will be able to chart their own future and attract the most fulfilling work. By harnessing these advantages, Canada can become a trusted source of sustainable solutions, expertise and investment now and into the future. Having skilled Canadian sustainable finance professionals will be a crucial part of this.