How to navigate emerging ESG realities in asset and wealth management

By taking a humans@centre approach, asset and wealth managers can derive the unexpected benefits of ESG regulations.

Wealth and asset managers must put humans at the centre of an always-on approach to ESG strategy , adoption, reporting and governance. Those who embrace a humans@centre approach can transform ESG reporting from a compliance activity into a competitive edge, especially as the regulatory landscape in Canada continues to evolve in real time.

How does ESG represent an opportunity for Canadian wealth and asset managers?

Investor and shareholder pressure is mounting

Demonstrating a consistent, comprehensive and transparent approach to sustainability is among the top 10 resolutions for asset managers looking to succeed in 2024. That’s driven largely by increasing pressure from key stakeholders who now expect wealth and asset managers to play their part in building a more sustainable economy.

The large majority (96%) of Canadian wealth managers say clients are increasingly focused on ESG credentials in their investment portfolios; 90% of investors feel firms must invest significantly more in new technology to support their understanding of ESG and climate-related portfolio risks.¹

Shareholders themselves are seeking increased transparency as they push back against potential greenwashing or politicization — factors that can create serious trust deficits among these important decision-makers. Put simply: ESG adoption is now considered table stakes.

Regulatory requirements are changing

The regulatory landscape is shifting all at once, all over the world. We don’t yet know exactly what ESG reporting will look like in Canada overall, or for financial services firms specifically. However, we can be relatively certain that sustainability reporting regulations are, in fact, coming, much like what we’ve seen at speed and scale in Europe, Asia and the United States.

Closer to home, the Canadian Sustainability Standards Board (CSSB) has already released initial sustainability disclosure standards for public consultation. The draft is aligned with the International Sustainability Standards Board (ISSB) and garnered the full support of the Canadian Securities Administrators (CSA). Starting in 2024, the CSA will require federally regulated, eligible banks, insurers and financial services firms to provide ESG disclosures on climate-related risks.²

Simply aiming to keep pace with these emerging regulations won’t be enough for wealth and asset managers looking to truly thrive in this unfamiliar environment.

Effectively navigating this complex operating environment requires a clear and compelling strategy; one deeply connected to a human-centred value proposition and grounded on digital platforms capable of supporting strong governance, no matter how the reporting landscape or market sentiment changes.

Wealth and asset managers can have significant influence on ESG outcomes. This could come in many forms. For example, embedding client and environmental risks into the organization’s overall practices to offering ESG-specific investment products and solutions or entrenching ESG in investment processes.

What’s the first step in navigating emerging ESG realities?

1. Establish sound strategy and governance frameworks. Firms should craft and align on an enterprise-wide ESG vision and objectives that are reflected in their strategy and product and service innovation. Make that strategy human-centric by:

• Ensuring it is authentically owned at every level of the organization, with the C-suite and executive leadership actively socializing and embodying the strategy across the broader organization. A robust ESG vision that’s broadly adopted throughout the organization can be a distinguishing factor between a laggard versus a market leader in the wealth and asset management space. Getting there starts with a compelling, shared vision capable of rallying the workforce to come on board, operate differently and spur action.

2. Create effective risk, regulation and compliance protocols. Regulatory and compliance protocols form an essential part of a robust ESG strategy. Navigating the complex landscape of ESG regulation is crucial to mitigating potential risks and ensuring compliance with both domestic and international standards. Make those protocols human-centric by:

• Investing in and deploying digital tools that help your people stay abreast of continuously evolving ESG regulations. Think beyond the technology stack and digitally transform in ways that empower your people to help move ESG outcomes and reporting forward.
• Enabling employees to shift away from mundane or manual reporting tasks to instead concentrate on higher-value, strategic ESG initiatives and streamline compliance protocols. This can be achieved by employing digital technologies to automate compliance tasks and provide a real-time view of regulatory risks, ultimately unlocking resource capacity in your workforce.
• Equipping relevant teams with a deep understanding of various ESG standards. Think SASB, TCFD, EU taxonomy or SFDR. This can also help the organization meet disclosure obligations and avoid hefty penalties.

3. Design clear roles for ESG data management and governance. Without accurate and reliable information, firms could struggle to provide consistent ESG reporting across the organization. Make your protocols human-centric by:

• Designating clear roles or champions for ESG data management governance responsible for developing a comprehensive approach for data acquisition. Firms should also define clear processes for harmonizing data — standardizing the collection, storage, cleansing, management, usage and disposal of data — and establish a centralized data architecture for ESG.
• Modernizing data capabilities now to help your people start looking into ESG sooner rather than later. Your teams cannot measure what they cannot track effectively. Clarity supports their ability to address ESG systematically, rigorously and at scale.

4. Cultivate a sustainable culture that embraces ESG principles. Building a sustainable culture is paramount to embracing ESG principles. How a firm behaves — including its values, ethics and norms — significantly influences its ESG image. Make your culture human-centric by:

• Encouraging sustainable thinking and practices at the heart of everything you do.
• Ensuring your employees can manage the change that comes along with evolving ESG regulations and market demands by implementing digital platforms that support continuous learning and training on ESG matters. This will empower employees at different levels to connect the impact of their actions to the firm’s ESG goals.
• Fostering open dialogue and knowledge-sharing about the firm's ESG strategy, expectations and achievements using digital communication and collaborative tools.
• Collecting robust employee feedback, demonstrating the firm’s willingness to understand internal views and perspectives on ESG activities.
• Weaving ESG objectives into key performance indicators (KPIs) for employees and leadership and offering advanced analytical tools to track and report on these areas. Connecting KPIs and objectives can lead to a broader cultural shift, which in time becomes the actual face of the ESG vision.

What’s the bottom line?

ESG adoption and governance are evolving in Canada. The best way to adapt in this environment is through an ESG strategy that’s flexible and can handle the broader market environment thereby putting humans at the centre of your approach and enabling them with clarity, digital tools and an ESG-centric culture so your organization can move forward together.