Investors' focus on risk stems from a growing recognition that ESG issues, such as severe weather events, supply chain disruptions and cyberattacks, can impact investment performance.Sumedha Lakmal/iStockPhoto / Getty Images
Minimizing financial risk is increasingly the top reason asset managers and owners consider environmental, social, governance (ESG) factors when making investment decisions, a new report shows.
The 2025 Canadian Responsible Investment Trends Report, released Tuesday by the Responsible Investment Association (RIA), says minimizing risk is outpacing other top priorities, such as improving returns and fiduciary duty, amid escalating concerns about the impacts of climate change, geopolitics and trade issues.
“Risk management has really become the anchor of responsible investment in Canada,” says RIA chief executive officer Patricia Fletcher.
She says the greater focus on risk stems from a growing recognition that ESG issues, such as severe weather events, supply chain disruptions and cyberattacks, can impact investment performance.
The report, which surveyed 83 Canadian institutional asset managers and asset owners from May 7 to July 9, also shows their ESG conviction hasn’t wavered despite anti-ESG sentiment in parts of the world.
U.S. President Donald Trump’s administration has rolled back policies related to climate change, emissions reductions and disclosures, and diversity, equity and inclusion. The moves follow a broader ESG backlash in the U.S., where Republican-led jurisdictions such as Texas and Florida have banned the use of ESG principles in state business.
“Rather than retreating, investors are staying the course, guided by evidence, focused on material risks, and committed to long-term value,” the report states.
Risk minimization drives ESG considerations
Minimizing risk is a growing priority for asset managers and owners when factoring ESG into their investment decisions.
Among this year’s survey participants, 83 per cent cited risk minimization as one of the top three reasons for ESG investing, up from 77 per cent last year and 74 per cent in 2023.
The gap between the top reason of “minimizing risk” and the second-highest reason of “improving returns” has more than doubled to 27 percentage points from 13 percentage points in 2023.
Improving returns was among the top three reasons for 56 per cent of asset managers, down from 63 per cent last year and 61 per cent in 2023.
Fulfilling fiduciary duty ranked in the top three for 48 per cent of survey participants, up from 47 per cent last year and 44 per cent in 2023.
Responsible investing (RI) based on purpose, mission and values dropped significantly to 26 per cent this year from 41 per cent last year and 34 per cent in 2023, the report shows.
RI drivers and deterrents
Climate change-related risks, including the financial costs of severe weather events such as fires and floods, were the top driver of RI investment growth among survey participants this year.
Almost half (48 per cent) of survey participants cited climate as the reason they invest through an RI lens, up from 40 per cent last year, although down from 63 per cent in 2023.
Investor demand for RI came in second place as a driver of ESG investing, the survey shows, at 43 per cent, down from 45 per cent last year and 57 per cent in 2023. Regulatory guidance came in third at 29 per cent, down from 38 per cent last year and in 2023.
The report shows the top deterrent to growth in RI is negative media coverage from other jurisdictions, rising to 46 per cent from 29 per cent in 2024, the first year the question was asked in the survey.
“This isn’t necessarily a surprise given the myriad of anti-ESG headlines witnessed over the last year,” the report states.
Concerns about greenwashing were cited among 33 per cent of survey participants, down from 44 per cent in 2024 and 64 per cent in 2023. Performance concerns stayed steady at 33 per cent this year, compared to last year, and above 14 per cent in 2023.
Ms. Fletcher says that rising markets, as we’ve seen in recent years, tend to support RI by taking pressure off concerns about short-term performance.
“They give investors space to focus on long-term risks,” she says, but adds they also raise expectations, “which means RI has to prove its value in all of the market conditions. And I think that will come through time when you think of the core issues it’s managing towards.”
More confidence in reporting, but standardization is still a concern
The report also shows asset managers and owners are confident in ESG reporting, but believe standardization, regulation and third-party audits are still needed. It says 69 per cent are confident in the overall quality of reporting, 91 per cent are confident in their own organization’s reporting, and 65 per cent are confident in other organizations’ reporting.
“Investors want standardized, consistent definitions and assurance – and that’s coming,” Ms. Fletcher says. “They’re still vigilant about greenwashing, but we’re seeing this slow, steady confidence improve as standards tighten and reporting and definitions become more robust.”
Earlier this year, Canada’s provincial securities commissions suspended their work on mandatory climate-related disclosures for public companies, citing the changing “global economic and geopolitical landscape.”
The report shows 96 per cent of survey participants, covering 87 per cent of assets under management, are assessing ESG as part of their investing process. Ms. Fletcher notes the high number doesn’t necessarily mean the assets chosen after the investment research process qualify as ESG investments.
Ms. Fletcher describes this year’s survey results as “clarifying” and “heartening,” particularly given the growing backlash against ES in some parts of the world.
“I really do think that the more and more we talk about ESG framing in terms of issues such as climate and weather, geopolitical instability, regulatory uncertainty, operational and supply chain risks … we take it down to a specific level – and none of these things are going away,” she says.