Bay Street financial district in Toronto on May 11, 2017.Gary Hershorn/Getty Images
The global shift toward a greener economy is expected to generate big profits for financial institutions, but a new report says Toronto is falling behind in the race to grab a slice of the market.
Canada’s financial sector stands to earn at least US$27-billion in annual revenue from sustainable finance – financial services that integrate environmental, social and governance factors into business or investment decisions. By 2025, revenues could be as high as US$110-billion annually, according to data from Corporate Knights, Inc., a Toronto-based research and media company focused on corporate social responsibility. That includes revenues from underwriting green bonds, financing clean energy and infrastructure projects and providing customers with socially responsible investment products.
“Economics, not policy, is now the driving force toward a low-carbon sustainable economy," said Toby Heaps, chief executive of Corporate Knights. “The Canadian financial sector has all the ingredients to accelerate and benefit from this capital-intensive transition.”
However, a report published Monday by Toronto Finance International, Ernst & Young and Corporate Knights cautions that Toronto has fallen behind other cities in the push to become a global sustainable finance hub.
“It’s a huge movement of capital that’s starting to happen," said Jen Reynolds, president and CEO of Toronto Finance International, formerly known as the Toronto Financial Services Alliance.
“Other financial centres are already further ahead than we are," she added, citing Luxembourg as a global leader in the issuance of green bonds.
Ms. Reynolds would like to see Canada implement a cohesive strategy to address the shift to a lower-carbon economy.
“We’re a resource-based economy, so we need to think about what a transition looks like for us," she said. “It’s better to think about it sooner rather than later … it’s not something that happens overnight.”
Environmental, social and governance factors – often referred to as ESG factors – have risen to the top of the agenda in many boardrooms, largely due to pressure from institutional investors who are looking not only to minimize risks, such as being left holding stranded assets, but also to maximize the financial opportunities of a greening economy.