A first-of-its-kind report looks at the 20 largest credit card issuers in the United States and evaluates whether they were in line with the International Energy Agency’s net-zero by 2050 pathway between 2021 and 2024. The report, titled Better Options: How Large Companies and Nonprofits Can Select Climate-Aligned Credit Card Partners, was produced by Stop the Money Pipeline, a coalition of environmental groups targeting banks and insurers, and released on February 18.

Of the 20 institutions examined, 12 finance the fossil fuel industry, including expansion projects. The report, which was developed in collaboration with groups like Rainforest Action Network, Reclaim Finance and Stand.earth, also outlined how six of these 12 institutions, such as Barclays, Capital One Financial and TD Bank, increased financing for the fossil fuel industry between 2021 and 2024. Seven of the 12 decreased financing for sustainable energy projects, such as UMB Group and Citibank. All 12 need to increase their spending on sustainable energy at least 13-fold compared to fossil fuel financing to align with net-zero by 2025 targets.

“We wanted to look at credit cards,” says Sarah Lasoff, lead author of the report and special projects manager at Stop the Money Pipeline, because there is a “viable and ambitiously climate-aligned action that companies can take.”

Changing banking institutions can be a huge undertaking for companies, non-profits or governments, Lasoff says. “Whereas a credit card partnership, you can just choose another one of these large credit card partners, because they can issue millions of credit cards, and they’re not funnelling billions into the fossil fuel industry.”

The remaining eight better-option institutions, such as American Express and Synchrony, did not finance the fossil fuel industry. Instead of commercial or investment banking, these institutions specialized in issuing credit cards, as credit unions or as smaller regional banks.

It’s really rare that we have an opportunity to potentially move so much money towards a financial institution that is doing the right thing and away from a financial institution that is doing the wrong thing.

– Sarah Lasoff, Stop the Money Pipeline

According to another report released last spring, The Carbon Bankroll 2.0 by Topo Finance, the financial institute that a company chooses to partner with may be their largest source of indirect emissions. However, tracking emissions from a company’s financial institution is not yet a standardized practice, Lasoff says. It also means that companies should look for financial institutions that align with their own sustainability goals. “If companies started choosing the better options, there would be a market incentive for financial institutions to move away from financing the fossil fuel industry,” Lasoff says. Companies that have net-zero 2050 targets might be unaware that their credit card partner is misaligned with their own corporate climate ambitions.

The Costco case

Costco, for example, is a company that Lasoff says has demonstrated that it cares about things like diversity and inclusion, its workers and the climate. But Costco’s credit card partnership with Citibank, the second-largest funder of the fossil fuel industry worldwide between 2021 and 2024, is misaligned with its climate ambitions. And Costco’s partnership is significant for Citibank: it makes up 15.8% of all its credit cards issued.

Lasoff says that this is an opportunity for Costco to do what it already does but better, and to maximize its positive climate impact. “We don’t believe that Costco wants to contribute to the pollution of communities in the Gulf South and contribute to global warming, which is creating . . . more dangerous climate disasters.”

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Costco’s co-branded credit card partnership with Citibank is set to expire in 2029, and procurement of a new partnership could start as early as 2027. Lasoff says that previously Costco had a partnership with one of the better options, American Express, and she hopes that by sharing the report with Costco, it can make choices aligned with its climate goals. Lasoff says that Costco has received a copy of the report but has not yet responded. Costco also did not immediately respond to a request for a comment.

In addition to Costco, Citigroup has credit card partnerships with Best Buy, ExxonMobil, Home Depot and others. The report also mentions other partnerships with the worse fossil-fuel-funding financial institutions. For instance, JPMorgan Chase has credit cards with Air Canada, British Airways, United Airways, Hyatt Hotels, Marriott Hotels, Amazon and others.

Equipped with information about which financial institutions are the better options, companies can now decide to partner with financial institutions that are not financing climate change.
“It’s really rare that we have an opportunity to potentially move so much money towards a financial institution that is doing the right thing and away from a financial institution that is doing the wrong thing,” Lasoff says.

Ashley Perl is a Canadian freelance journalist based in Stockholm. 

The post New climate-finance campaign targets Costco’s partnership with Citibank appeared first on Corporate Knights.

In December, U.S. Senator Ted Cruz introduced legislation that would block voting on environmental, social and governance (ESG) and diversity, equity and inclusion (DEI) matters for the federal pension fund. The bill would prohibit BlackRock and State Street from exercising their voting rights as shareholders on matters related to the Thrift Savings Plan – the $1-trillion retirement plan for U.S. federal employees.

This legislation strengthens Republican efforts to limit asset manager participation in ESG and climate coalitions, occurring alongside lawsuits alleging antitrust violations related to sustainability initiatives. Shareholders should be deeply concerned.

Despite the government’s rhetoric, climate risks are not abstract concerns. The financial losses from climate-related disasters are already staggering and directly affect corporate balance sheets, insurance costs, supply chain stability and asset values. When wildfires destroy infrastructures, when extreme weather events force business closures, these become material financial risks that any prudent investor must consider.

Yet this legislation would forbid asset managers from voting directors off boards when they underperform as a result of failing to manage these risks. Nor would they be able to vote against CEO pay packages that incentivize short-term thinking over long-term climate resilience. Voting for or against mergers and acquisitions based on the climate-related risks or opportunities they present would also be off the table.

The doublespeak has been striking. The bill’s proponents frame it as protecting shareholder interests and ensuring fiduciary duty, yet it proposes the wholesale elimination of voting rights on a broad category of financially material issues. Shareholders – including the federal employees whose retirement savings are at stake – are being told that their interests are best served by having fewer voting rights and reduced ability to hold management accountable. The underlying assumption appears to be that asset managers considering climate risks, social factors, or practices such as ESG and DEI are inherently acting against shareholder interests, an assertion that ignores decades of research demonstrating the financial materiality of these factors and the value of active ownership in protecting long-term returns. The evidence is clear.

Yet the implications of Senator Cruz’s bill extend far beyond this single piece of legislation. Once governments establish the precedent that they can selectively prohibit voting on certain categories of proposals, what is the next target? The legislation effectively creates a two-tiered system of shareholder rights: some topics are deemed acceptable for investor engagement, while others, despite their potential financial materiality, are placed beyond the reach of fiduciary oversight. This is not market-based decision-making; it is state intervention determining which corporate governance matters shareholders may address through their ownership rights.

Cruz’s proposal is part of a broader pattern. Important changes are reshaping the U.S. corporate governance landscape, with particularly significant implications for the 2026 proxy season, which is upon us. The Securities and Exchange Commission (SEC), citing lack of resources, has dramatically limited no-action letter requests, now focusing only on resolutions not being a “proper subject” for shareholders under state law.

Paradoxically, despite these claimed resource limitations, President Donald Trump has issued an executive order directing the SEC – along with the Federal Trade Commission and the Department of Labor – to undertake a comprehensive review of regulations governing proxy advisers, particularly those involving DEI and ESG considerations. The executive order specifically targets Institutional Shareholder Services and Glass Lewis, which together control more than 90% of the proxy adviser market, asserting that these firms prioritize politically motivated agendas over investor returns.

Furthermore, Texas has implemented legislation that restricts both derivative actions and shareholder proposals, effectively narrowing the pathways through which investors can hold corporations accountable. Perhaps most telling is ExxonMobil’s move last year to sue shareholders who filed a climate-related proposal – a stark indication that the corporation–shareholder relationship has shifted from the realm of business and markets into legal warfare.

We should be concerned not just about ESG or DEI specifically, but about the precedent being established for all shareholder rights. If companies can sue shareholders into silence, what incentive remains for investors to exercise stewardship and active ownership? And if the SEC withdraws from its role in maintaining a fair and orderly process for shareholder proposals, who will protect investors’ fundamental rights? These are not hypothetical concerns; they are materializing in real time and at, what I would consider, light speed in the United States.

The right to vote as a shareholder is at risk of becoming a hollow privilege, restricted to only those matters deemed politically acceptable to the government of the day. The irony is that those claiming to protect free markets and shareholder interests are systematically dismantling the very mechanisms that allow markets to function and shareholders to exercise their ownership rights. Whether this erosion can be reversed will depend on whether investors recognize what is at stake before it is too late.

Julie Bernard is a research fellow with the Institute for Sustainable Finance at Smith School of Business, Queen’s University, and an assistant professor of sustainable finance at the School of Environment, Enterprise and Development at the University of Waterloo.

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Regulators and legislators rolled back pro-sustainable investment rules in the United States, tightened guidelines in Europe and paused headway in Canada in a global onslaught on green financing.

Assets invested in environmental, social and governance portfolios flattened as the ESG term itself fell into disfavour among the least committed green funds and investment managers. Even so, growing interest in climate transition industries and renewable energy buoyed the sector’s prospects, strengthening impactful areas of sustainable finance.

So what’s next for 2026? Here are my predictions for sustainable and responsible investment for the year ahead.

1. Sustainable funds will assume a low profile in the battle for market share

The share of the total investment market in the United States held by sustainable finance held steady in 2025 at 11% of total assets under management in 2025, a slight decline from 12% a year earlier, according to the U.S. Sustainable Investment Forum (US SIF), the industry’s trade group. Sustainable assets were US$6.6 trillion in 2025 and total assets under management were US$62 trillion. The estimate includes institutional and individual assets specifically labelled as “sustainable” or “ESG.”

Maintaining this market share in 2026 will be a challenge. The industry is facing a continuing barrage of anti-ESG rhetoric from the Trump administration. The attacks were exemplified by a September speech by Trump pension policy adviser Justin Danhof, who told an international conference in Paris that “ESG at its core, looks a lot like a Marxist march through corporate culture.”

The industry is taking a low profile in the face of such bombast. Only 10% of sustainable investment managers surveyed by US SIF this year said they planned to add significantly to their assets in the next 12 months, and about a quarter said they plan to moderately increase their allocation. About half are planning to hold their sustainable assets at the current level.

Some asset managers have become reluctant to publicly associate their sustainable funds with ESG strategies. One in four sustainable investment managers surveyed by US SIF said they have stopped using the ESG acronym.

Launches of new sustainable funds around the world have largely dried up. Morningstar said there were only 26 new sustainable funds launched in the three months ending September 30, down from 92 in the second quarter and significantly lower than the 200 funds launched in the fourth quarter of 2022. Of the 26 launches, 20 were in Europe.

The takeaway: As the Trump assault on ESG continues, large mainstream investors like BlackRock, State Street and Vanguard will keep their heads down. Don’t expect a revival in sustainable fund launches or increased ESG marketing in 2026 and not until 2028 near the end of Trump’s term.

2. Banks will ramp up financing for liquefied natural gas projects

The world’s largest banks provide important financing to fossil-fuel and renewable-energy companies through loans and underwriting services. As a major source of capital to oil and gas, climate action groups are pressuring banks to phase out their fossil fuel financing.

Initial data show that banks reduced fossil fuel financing by about 25% in the first seven months of 2025 compared with the same period a year earlier. The current glut in oil supplies has put a damper on new drilling and reduced demand for capital, particularly in the United States.

Nevertheless, lending and underwriting to the fossil fuel industry is expected to grow in the coming year because of a continued global expansion in liquefied natural gas (LNG) infrastructure. According to Paris-based Reclaim Finance, there are 279 new LNG projects  planned around the world. If completed, these projects will produce enough gas to create more than 10 billion tonnes of carbon dioxide annually (or more than a quarter of all current energy-related emissions), “destroying any hope of achieving global climate goals,” Reclaim Finance says. The group estimates that global banks have already provided US$174 billion to LNG projects between 2021 and 2024.

The takeaway: With some exceptions such as a possible new oil pipeline in Western Canada, demand for bank financing for oil companies and projects will weaken in 2026 along with lower oil prices. But the massive expansion in LNG projects will continue to  create demand for gas infrastructure financing. This will trigger added pressure on the banks by climate action groups and Indigenous communities to turn off the taps to the gas industry.

 3. Renewable-energy and climate-transition industries will be a bright spot

As 2025 came to a close, stock markets became increasingly jittery over prospects for the highly concentrated tech sector, especially the so-called Magnificent Seven stocks that make up about 35% of the S&P 500 index. Concerns are growing that the colossal run-up in these stocks caused by massive investments in data centres is coming to an end.

The stocks (Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet and Tesla) were darlings of conventional investment portfolios in 2023 and 2024. Many broad-based sustainable portfolios with ESG screens also held them based on neutral to positive rankings on most environmental and social issues.

Popularity among ESG investors started to cool in 2023 after the introduction of ChatGPT raised concerns over the massive energy demands of AI data centres and other environmental issues such as water use. There are also exploding concerns over the role of social media in shaping political views among many groups such as young men.

Now, some conventional analysts are suggesting that investors should take their profits from the Magnificent Seven and rotate into other sectors such as energy and industrial stocks. For sustainable investors, this could be a good time to buy shares in clean-energy companies, which outperformed both tech and oil in 2025, and climate-transition industries.

Examples of such companies can be found in the Morningstar Sustainalytics 21-company climate transition list. The names include Italian utility Enel, electrical component manufacturer Schneider, Norwegian aluminum and energy producer Norsk Hydro, industrial gas manufacturer Air Liquide and wind power systems company Vestas.

The takeaway: Look for continuing strength among renewable-energy stocks in 2026, as well as some surprise breakouts in industrial and basic materials companies with strong carbon dioxide emission policies and product lines that will benefit from the climate transition.

Read Eugene’s predictions from last year

Seven sustainable finance predictions for 2025

4. European sustainable fund turmoil will come to an end

Europe, where about 85% of the world’s sustainable fund assets are located, has been embroiled in a year-long controversy over how its sustainable funds should be named or described to investors. Morningstar estimates that more than 1,500 funds with a value of more than US$1 trillion, or 28% of the sustainable funds in Europe, have been renamed since the beginning of 2024. More than 700 of these were renamed in 2025.

The key issue is a new set of rules stipulating that funds with environmental terms in their names must exclude fossil fuel holdings and ensure that at least 80% of their portfolio meets environmental goals. Funds using a “sustainable” name must show meaningful holdings in sustainable assets. The rules were established by the European Securities and Markets Authority (ESMA) with a May 2025 compliance deadline.

Most funds that changed their names dropped the terms “sustainable,” “ESG” or “responsible” from their labels but didn’t change their objectives or strategies. The controversy has created confusion among investors and reinforced greenwashing suspicions.

In November, the European Commission proposed a set of amendments to its Sustainable Finance Disclosure Regulation (SFDR) to further clarify naming rules for sustainable funds.  Going forward, funds will fall under three labels: sustainable, transition and ESG basics.

The Institutional Investors Group on Climate Change welcomed most of the changes, saying they are useful tools for fund transparency. However, IIGCC also said that a streamlined list of mandatory criteria for assessing assets could help to promote greater comparability between funds. The package will now go to the European Council and Parliament for final approval.

The takeaway: Now that the ESMA renaming controversy has eased, European fund managers and advisers have a better framework to explain the differences in sustainable fund approaches. And while the new SFDR rules won’t be finalized until 2027, fund companies and advisers can immediately discuss investments with their clients using the new framework, suggesting options for clients concerned about issues such as fossil fuel holdings in ESG funds.

5. Canadian pipeline plans won’t find private investors

A sustainable-investment controversy is brewing in Canada over the recent agreement between Prime Minister Mark Carney and Alberta Premier Danielle Smith to work toward a new pipeline to ship oil-sands bitumen to the West Coast. Almost immediately after the November announcement, industry experts and critics said the pipeline is not feasible since there is no private-sector proponent, required Indigenous approval is unlikely, and the British Columbia government is opposed to lifting a West Coast tanker ship ban.

What few people have talked about is that it is also unlikely that a major bank, consortium or equity investor will also come forward. There is no official cost estimate for the project. However, based on other recent pipelines, it would likely be in the tens of billions of dollars, a cost too high to be recovered through oil transit tolls, according to the International Institute for Sustainable Development. Investment analysts have expressed skepticism that the pipeline will receive private-sector support.

Even if the economic model for the pipeline worked, any bank or consortium of lenders or equity investors would be hesitant to back the project. One of the last major pipelines constructed in Canada – Coast GasLink – triggered multi-year vocal protests at RBC, one of its lenders. Given the high-profile nature of the  West Coast oil pipeline, similar protests could be expected at any bank or equity investor supporting the project.

The project is also unlikely to fall within the green or transition “taxonomy” guidelines to be developed starting in 2026, governing which Canadian investment activities will be officially labelled as sustainable. Development of the guidelines will be led by the Canadian Climate Institute think tank and Business Future Pathways, a coalition headed by a who’s who of sustainable-investment champions and representatives of climate action NGOs. Even if oil shipped through the pipeline will be produced with lower per-barrel process emissions than present oil-sands oil, it will be tough for the new group to give such an investment a transition label given the high level of Scope 3 or end-use emissions it will facilitate. It’s highly unlikely that banks or equity investors will be able to proclaim investment in the pipeline as a transition investment.

The takeaway: The lack of a pipeline company or group of companies to champion the project in 2026 will enable banks and equity investors to stay on the sidelines. Given the longstanding glut in oil supplies, there will be little progress on the project in the coming year despite ongoing political support from Ottawa and Alberta.

The big picture

The Trump administration is ramping up its attacks on sustainable finance and ESG and its support for fossil fuels. This has provided hope for oil and LNG proponents that the financial community will get behind an expansion in conventional energy. The economics of alternative energy sources suggest that renewables should win out, but this is not a sure thing. What’s known is that inexpensive green energy and climate-friendly manufacturing are moving ahead. The crusade against ESG will continue for a few more years, but it won’t stop the smart money from supporting the industries of the future.

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).

The post Five sustainable finance predictions for 2026 appeared first on Corporate Knights.

On that day, Steyer changed, too. The company he’d founded, Farallon Capital, had long invested in fossil fuels. But Steyer realized climate change was “happening much faster than most of us imagined,” he wrote of the experience. He started speaking out, lobbied politicians and established a family foundation to support alternative systems, such as organic agriculture. Tom and his wife, Kathryn, also endowed the TomKat Center for Sustainable Energy at Stanford University, where young entrepreneurs are developing innovations such as hydrogen-fuel systems for heavy trucks, safer and more powerful lithium batteries, and fertilizers made of almond shells. 

In 2012, Steyer stepped down from Farallon. “I have a passion to push for what I believe is the right thing,” he told The Globe and Mail. Soon after, he founded NextGen America, a political action committee that mobilizes young people to vote. Steyer himself became the biggest donor in Democratic party history and helped convince Barack Obama to veto the northern section of the Keystone oil-sands pipeline. Disillusioned by politicians’ reluctance to act, he ran for president in 2020, promising to use executive power to enact a green new deal.

Steyer had little impact on the campaign and dropped out after focusing all his attention on delegates in South Carolina – who voted for Joe Biden. At that point, he might have vanished into the limbo that awaits most independent presidential candidates. But Steyer returned to his roots and founded Galvanize Climate Solutions, to use the power of finance to accelerate new climate technologies. The firm has raised more than US$1 billion. 

But Steyer still worries that Americans aren’t listening. Last year, he released a book, Cheaper, Faster, Better, that reframes this crisis as an opportunity. With renewable energy now cheaper than fossil fuels, he says, climate solutions aren’t just a last hope but our best bet. The journey to net-zero will give us cleaner air, more energy at a lower cost, better products for less money and improvements in just about every aspect of society, he writes. “It’s a fight we’re already starting to win.” 

The post How a billionaire fossil fuel investor became a climate crusader appeared first on Corporate Knights.

But the Cambridge, Ontario, resident is “constantly evaluating” all her family’s consumer choices, she says. They watch how they shop and invest, but it wasn’t until last year, while attending an online class with financial consultant and podcaster Tim Nash, that Graham started thinking about the environmental and social impacts of the money in her chequing account. “I have been interested in sustainable investing for over 10 years but had never really thought about the money that wasn’t invested,” she says.

Since banks and credit unions lend about 20 times more funds than they hold in deposits, where we choose to bank has ripple effects, like any other consumer choice. While big banks lend to fossil fuel companies and other “sin” industries, money lent by credit unions stays in communities, supporting neighbours and local businesses.

Credit unions are also greener than big banks, with smaller footprints and outsized sustainability initiatives. “Credit unions can utilize their influence to facilitate a just [green energy] transition by supporting their members and local businesses in reducing their emissions,” writes Helen Tooze, a researcher at the University of British Columbia, in a 2023 report. Several credit unions already do this by offering lower-interest-rate loans for energy-efficient home renovations. Other Canadian credit unions, such as Vancity, Coast Capital and southwestern Ontario’s Libro Credit Union, have achieved B Corp certification – a designation that for-profit companies can attain if they meet high social and environmental standards, which no major Canadian consumer bank has attained.

The last time North American credit unions saw a major influx of new customers was on November 5, 2011, when about 40,000 people in the United States reportedly fled their banks to protest a monthly debit card fee at Bank of America. But no mass movement to credit unions exists today, with growth in Canada stagnating despite committing to positive environmental, social and governance practices. The big banks dominate about 90% of financial services in Canada.

It’s usually not that they’re eager to run to a credit union. It’s usually that they are eager to run away from their bank.

—Tim Nash, founder, Good Investing

For the past decade, observers and the industry itself have warned that the main body of credit union members is aging, and the next generation isn’t filling their place at the same rate. When younger people make the switch, it’s because big banks have financial links that don’t reflect their values, such as to fossil fuels, weapons manufacturing and the war in Gaza. “It’s usually not that they’re eager to run to a credit union,” Nash says. “It’s usually that they are eager to run away from their bank.”

A BDO Canada survey of 35 executives and other managers at Canadian credit unions reported expanding their member base as the second top challenge after “optimizing customer experience.”

Some industry publications suggest that the way to attract younger members is with flashy tech and modernization, but others say an analog, feelings-focused message could have a bigger effect. As a group of McKinsey financial services consultants put it in 2024, the trick might be highlighting the “credit unions’ history of commitment to social impact” and tying this to values consumers are trying to live by.

Making the connection

The first North American credit union opened in 1900 and was pioneered by Alphonse Desjardins, a Quebec journalist and stenographer. He wanted to offer working-class families affordable access to credit, combatting rapacious interest rates flogged by other lenders.

Today there are about 400 credit unions in Canada, ranging from large, full-service organizations with flashy marketing and dozens of branches to single outlets with a handful of employees. But in a noisy market full of traditional banks and emerging fintech companies like Wealthsimple, there’s more competition than ever.

“Credit unions do talk about their ESG bona fides,” says Chris Atchison of Shockwave Strategic Communications, a firm that frequently works on accounting and finance ad campaigns. “But they just don’t have the same marketing machines behind them that the big banks do.” The mission for shareholder-owned banks is to earn profit, he points out, so the marketing push is more aggressive than at credit unions, where cooperative-based sustainable growth is the priority. 

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Another challenge is inertia. Most Canadians with traditional banks say they are satisfied with their banks, but Nilesh Kavia of Saskatoon-headquartered Affinity Credit Union says credit union members have higher satisfaction rates. A recent Canadian Credit Union Association survey found that 84% of credit union members rate their financial well-being as good or very good, compared to 78% of non-members. 

Kavia says that family is a key factor influencing the youth market: young people frequently stick with the bank their parents choose for them. And new immigrants, who tend to skew younger, have a “familiarity gap” with the concept of a credit union, he says.

Maria Phillips, marketing director at London, Ontario–headquartered Libro Credit Union, says the bank knows that younger generations want to see themselves reflected in the brands they trust. “That’s why we’ve shifted to featuring real Libro members in our marketing – showcasing the individuals and communities we serve,” she says. 

Success through social purpose

“Credit unions tend to attract an older crowd and – similar to churches – have struggled to redefine their value proposition to a younger generation as our membership ages,” says Sam Herscovitch of Coast Capital, a British Columbia credit union with 52 branches. Coast Capital launched a plan in 2020 to refresh the credit union, which included an additional focus on attracting new millennial and Gen Z members. To achieve this, the financial cooperative shifted to what it calls a “social purpose” business model, which focuses on helping members grow their incomes and financial opportunities. This includes financial education tailored to young clients and offering discounted or free services for students and members under 25. It also includes investing in community employment programs for female newcomers and young people with disabilities. Herscovitch says the efforts are paying off. “In 2024, 52% of new members were under the age of 35.”

For her part, Julie Graham closed her accounts at two other banks and opened a new one at a nearby regional credit union branch. She considers it low-hanging fruit compared to other consumer decisions she tried to align with her family’s values. “It seemed to be a very easy decision to make.” Next up? Setting up accounts for her husband and eventually her daughter, and enjoying the peace of mind that she’s putting her money where her values are.

Rob Csernyik is a freelance journalist specializing in business and investigative reporting, as well as long-form features.

The post How credit unions are pushing a just energy transition appeared first on Corporate Knights.

The umbrella organization for global financial-industry action on climate change, the Glasgow Financial Alliance for Net Zero (GFANZ), is in crisis after major U.S. and Canadian financial institutions quit the alliance in recent weeks. In a related development, the money manager group affiliated with GFANZ suspended its activities and will review its future in the face of growing challenges to climate action by lawmakers, the courts and clients.

The suspension is part of a stunning chain of events that has rocked the member alliances of GFANZ and the umbrella organization itself. The crisis was triggered by the recent departure from the Net Zero Asset Managers (NZAM) initiative of U.S.-based BlackRock, the largest money manager in the world, and the exodus of six large U.S. banks and four large Canadian banks from the GFANZ-affiliated banking alliance.

The GFANZ crisis comes as U.S. public attention focuses on global warming with climate-induced fires ripping through Los Angeles suburbs and recent data that show the earth experienced record-breaking global temperatures in 2024.

The dilemma highlights the depth of anxiety felt by executives of major financial institutions, particularly those in the United States, over the pushback to the net-zero agenda triggered by the election of Donald Trump, and a growing hostility to environmental, social and governance (ESG) investing by U.S. courts.

These events also come at a bad time for former central banker and GFANZ founder Mark Carney, the former United Nations special envoy on climate action who is now running to lead the Canadian Liberal Party into a national election later this year.

Why is this crisis happening now, and does it represent an about-face by the financial industry in how it handles the climate emergency? Here’s a backgrounder with questions and answers on recent events.

What is GFANZ?

GFANZ is a global network of financial institutions supporting the Paris Agreement goal of a transition to net-zero by 2050. The “Glasgow” in GFANZ comes from the Scottish host city for the 2021 UN climate summit where the alliance was launched. GFANZ was regarded as the world’s most important organization coordinating climate action by banks, asset managers, asset owners and other financial sectors, though now that reputation is very much in doubt. According to GFANZ’s 2023 progress report, 675 institutions from 50 countries were members of its affiliated alliances in these sectors.

What’s happening now?

Between December 6 and January 7, Goldman Sachs, Wells Fargo, Citigroup, Bank of America, Morgan Stanley and JPMorgan Chase – the six largest banks in the United States, with vast operations around the world – announced departures from the Net-Zero Banking Alliance (NZBA), the banking network affiliated with GFANZ. According to NZBA’s website, U.S. participation in the banking alliance is now down to three explicitly sustainable and responsible banks: Amalgamated Bank, Areti Bank and Climate First Bank. Four large Canadian banks – TD, Bank of Montreal, National Bank and CIBC – also left the NZBA on January 17.

On January 9, BlackRock left NZAM, the asset manager alliance. Many small and medium-size U.S. asset managers remain at NZAM. However, BlackRock’s departure is a big loss. The asset management industry is dominated by three companies internationally: BlackRock, Vanguard and State Street. Only State Street remains from these three companies after Vanguard left the alliance in 2022.

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What’s behind this exodus?

Statements by the banks have not provided a clear picture on why they have left NZBA, instead emphasizing a commitment to work with clients on sustainability matters. However, in a client letter about its departure, BlackRock said its net-zero alliance memberships “have caused confusion regarding BlackRock’s practices and subjected us to legal inquiries from various officials.”

In the last two years, banks and asset managers employing ESG investment practices have faced boycotts and lawsuits from Republican-led states. Most recently, Texas filed a lawsuit joined by 10 other states against BlackRock, Vanguard and State Street, alleging that their energy and ESG investment policies conspire to reduce competition in the coal industry. A federal judge has recently ruled that American Airlines breached its legal duty to make pension investment decisions based solely on financial interests by allowing BlackRock, its pension manager and a major shareholder, to consider ESG factors.

These business and legal considerations have unnerved the financial community, but there is also growing unease at the prospect this month of Donald Trump assuming control of the White House while Republicans control Congress. “A few years ago when climate change was at the front of the political agenda, the banks were keen to boast of their commitments to act on climate,” Patrick McCully, analyst at the Paris-based climate group Reclaim Finance, told The Guardian. “Now that the political pendulum has swung in the other direction, suddenly acting on climate does not seem so important for the Wall Street lenders.”

What does this mean for GFANZ?

The depth of the crisis is demonstrated by the NZAM suspension, which means the group will suspend the tracking of implementation and reporting of climate activities by its member firms. It will also remove the commitment statement for member firms from its website, along with the names of members, their targets and case studies.

In addition to the NZAM announcement, GFANZ announced it will allow participation from “any financial institution working to mobilize capital and lower the barriers to financing energy transition.” What this means is that GFANZ will no longer require its members to belong to any of the sectoral alliances, which expect members to adopt net-zero targets and transition plans to achieve them.

GFANZ also said it will be governed by a “principals group” outside of the sectoral alliances. Perhaps most significantly, GFANZ said it will turn its focus to closing the investment gap needed for the energy transition, especially in emerging markets and developing countries. This signals that the focus will no longer be on the net-zero transition of banks, asset managers and asset owners and instead will concentrate on the capital needs of developing countries.

Is the financial industry abandoning net-zero?

None of the departing companies cited any change to their net-zero targets, except for Morgan Stanley, which announced in October that it estimates that the 2030 implied temperature rise of its financed emissions could be as high as 1.7°C (above the Paris Agreement limit of 1.5°C). As for the remaining members of NZBA, the alliance continues to expect members to set and meet net-zero targets in alignment with the Paris Agreement. At least for now.

Even with few overt pullbacks in emission targets, the crisis at NZAM and the exodus of U.S. and Canadian banks from NZBA have dealt a major blow to GFANZ.

These leave the net-zero alliances significantly weakened, with less influence to counter the financing of North America’s oil and gas expansion. This is expected to create an even larger gulf between European financial institutions that operate under significant government climate directives and their less-regulated North American counterparts.

This puts the cause of voluntary global financial-industry collaboration on climate in doubt, as North American financial institutions seek to pacify an increasingly hostile political and legal environment.

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).

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The first was a gender-diversity exchange-traded fund (ETF) that closed after three years when it failed to attract enough investors. The second and third were a pair of carbon-neutral ETFs that lasted less than a year because, according to Lala, investors didn’t want to pay higher fees to offset the carbon-credit trades.

“It was a painful decision,” Lala says of closing the Evolve North American Gender Diversity Index ETF in 2020. He thought the carbon-neutral ETFs tracking the S&P 500 and S&P/TSX 60 launched in 2021 might have a better chance, “but the market also told us that they weren’t interested in that either.”

Toronto-based Evolve is far from alone in its struggle to launch responsible investment (RI) funds that stick – and for different reasons. Hundreds of RI funds have been winding down in the United States and Europe in 2024 alone, and product development slowed significantly in the first nine months of the year when, according to Morningstar data, 246 new funds came to market globally, compared with 444 over the same period in 2023. Just 12 funds came to market in Canada in 2024 (as of mid-November), according to Morningstar, citing data from the Canadian Investment Fund Standards Committee. That’s down from 31 in 2023.

Some advisers say, ‘My clients don’t want this.’ But have you ever asked them?

– Tim Nash, founder, Good Investing

Morningstar says that after three years of high growth, managers are being more “selective and tactical” in their approach ahead of anti-greenwashing regulations in the United Kingdom and Europe. The European Union, which dominates the global RI fund market with an 84% share, followed by the United States at 11%, is also rolling out fund-naming rules to combat greenwashing, which could further shake up the RI fund industry. 

While there are still a lot of RI funds on the market, many investors – and the advisers who manage their money – remain skeptical of them. Some advisers claim there’s not enough demand from investors, while some investors say not enough advisers are raising the topic. Often-cited deterrents include higher fees for RI funds, performance and greenwashing concerns, and a lack of standardization that gives investors a benchmark for what’s truly sustainable.

Of roughly 3,000 funds reviewed by the Corporate Knights research team, only 290 were identified as having a responsible/sustainability-oriented investment approach. 

The 2024 Canadian RI Trends Report, released by the Responsible Investment Association (RIA) in November, says that performance concerns were a huge deterrent for institutional asset managers and asset owners surveyed, up significantly to 33% from 14% in 2023. The two concerns that came in higher – greenwashing and lack of standardization, at 44% each – were down from 64% and 57%, respectively, a year earlier. 

Retail investors push for green funds

It’s not all doom and gloom. The survey also showed that 70% of respondents believe retail investors are likely to drive RI growth over the next two to five years, fuelled by increased concerns about climate change and social justice. Regulators and institutional investors (which includes banks, labour unions and pension funds) followed closely behind. RIA says investors are demanding “quality responsible investments” that are “transparent, credible and financially savvy.”

Tellingly, just 29% of respondents believed financial advisers would drive RI growth.

What RIA describes as a “service gap” between advisers and investors is more like a gaping chasm: two-thirds of investors surveyed by RIA in 2023 want their advisers to tell them about RI, yet less than a third of advisers do. Anecdotally, some retail-level advisers say they’re not getting enough educational support from their financial institutions on how best to sell existing sustainable fund products. 

RIA is calling on advisers to better understand RI funds and strategies to help guide investor decisions. Two-thirds of the asset owners and managers surveyed in 2024 thought there should be an RI standard for advisers, and 13% said RI knowledge should be required in existing adviser designations.

As it stands, without those requirements in place, financial advisers have little incentive to offer sustainable investment options and strategies to their clients.

Financial advisers let perfect be the enemy of good

Tim Nash, a Toronto-based financial planner who founded Good Investing a decade ago to help investors align their values with their investment portfolios, says that some of his adviser peers underestimate demand for RI. “Some advisers say, ‘My clients don’t want this.’ But have you ever asked them?” Nash says. “There’s a tricky power dynamic between a client and an investment adviser. It does feel like investors have to step out on a limb a little bit to even broach the subject with their adviser.” 

Advisers that lean into this generally offer more holistic financial planning with their clients. As this becomes more mainstream, understanding and discussing these approaches with your clients is a great way to differentiate your practice.

– Fate Saghir, head of sustainability, Mackenzie Investments

Nash believes many advisers are avoiding RI because of inherent flaws in some companies and funds. For instance, some banks might have ties to oil companies, or some consumer brands might make and sell plastics made from oil products.

“They let perfect be the enemy of good and use that as an excuse to do nothing,” says Nash, who also gets feedback from some investors that the available investment options don’t go far enough. “There’s no way to completely eliminate fossil fuels or plastics from your portfolio because supply chains are so entrenched. I try to do a lot of education around doing less evil versus doing more good.”

There’s also the concern that sustainable funds underperform the benchmarks, which Nash describes as “an ongoing frustration.” While many RI funds underperformed in 2022, amid rising oil prices and a backlash against ESG investing in places like the United States, Nash says performance was on par with benchmarks in 2023 and 2024. “The goal with responsible investing is to earn about the same returns [as the benchmarks], and they’re nailing that,” he says.

Nash notes that RI isn’t just about returns but is also a way to protect portfolios. Companies that set targets and take action on environmental, social and governance issues are considered less risky because they pay closer attention to environmental management and are less likely to make a governance or social misstep.

“Investors should be focused on risk-adjusted rates of return, and, in my mind, responsible investments are a great way of earning very similar returns in a way that lowers our exposure to sustainability risks like climate change,” Nash says.

Sustainability isn’t just financial

Fate Saghir, senior vice president and head of sustainability at Mackenzie Investments in Toronto, says some advisers are hesitant to bring up RI in conversations with clients. “Sustainability isn’t just financial. It’s also asking about personal topics and issues like diversity and climate change. For many advisers, having that conversation could be uncomfortable,” she says. 

And while ESG is part of the know-your-client guidance set out by the Canadian Investment Regulatory Organization (CIRO) – the self-regulatory organization that oversees investment and mutual fund dealers in Canada – Saghir says the guidance uses language like “may” and “or,” which makes it sound optional. A CIRO spokesman said that advisers are encouraged to ask ESG questions as part of the know-your-client process, but it’s not a requirement.

Greenwashing concerns and a lack of standardization of what constitutes an RI fund are also a disincentive for some advisers, Saghir says. “There are different rating agencies with different methodologies that asset managers might use to incorporate ESG in their investment process, so there’s still a lot of uncertainty, even for the industry,” she says. “Advisers may be unclear on how to prove to a client that a fund is going to deliver on what it says it will from an ESG perspective. That’s why we’re advocating for standardization of disclosures that will create consistency and clarity and increase investor and adviser confidence.”

For advisers who want to broach sustainable investing with clients, Saghir suggests starting by asking about philanthropy and the charities they support. “It’s a great way to discover what their values are,” she says.

From there, she says that advisers can ask questions about whether clients want their investments to align with their social and environmental values, covering topics such as gender equality and climate change, and whether there are certain companies or sectors they want to avoid in their investment portfolios. 

“Advisers that lean into this generally offer more holistic financial planning with their clients,” she says, citing RIA’s trends report, which shows that 71% of investment assets in Canada employ at least one RI strategy. “As this becomes more mainstream, understanding and discussing these approaches with your clients is a great way to differentiate your practice.”

Belief versus business 

Lala notes that Evolve Funds has other products that fall into the RI category, including the Evolve Automobile Innovation Index Fund, which invests in companies involved in developing electric and autonomous vehicles, and the Evolve Cyber Security Index Fund, which invests in global companies involved in the cybersecurity industry, an increasingly important part of corporate governance mandates. Both are still trading and have performed well in recent years.

Still, he’ll likely hold off on launching another RI-specific fund until he’s convinced that investors and advisers have a stronger appetite for them. “It’s something that we believe in, but we also run a business. It costs a lot to launch and operate a fund, and it costs a lot to shut down a fund, so you really have to have pretty good conviction that it’s going to work.”

Brenda Bouw is a freelance writer and editor based in Vancouver.

Illustrations by C.J. Burton. 

2025 Responsible Funds

*Sum of a given fund’s underlying constituents’ weights that are rated by Corporate Knights.
**The weight of a constituent of a given fund multiplied by its rating by Corporate Knights, summed up for all of that fund’s underlying constituents.
***The score of a given fund (based on the percent-ranking calculation approach) derived by comparing its weighted rating against that of other funds in the same category.

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Energy security has become an overriding concern in the last two years as oil and gas prices have shot up, and sustainable finance has faced an increasingly hostile political environment in the United States. A consequence of this pushback came on New Year’s Eve, when global financial behemoths Bank of America and Citigroup left the Net-Zero Banking Alliance, one of the investment industry climate coalitions championed by the United Nations.

What does this mean for the year ahead? Will financial allocators support the energy transition of the future or capitulate to the demands of the present? Here are seven predictions for the world of sustainable finance in 2025, and its related tool kit of environmental, social and governance (ESG) investing.

In the United States, sustainable investors will face attacks on three fronts

Paul Atkins, Donald Trump’s choice to chair the Securities and Exchange Commission (SEC), is an ESG skeptic with a bent to streamlining securities regulation. While not considered a hard-right ideologue, he will reverse ESG-friendly regulations championed by the Biden SEC.

1. Shareholder rights. One of Atkins’s first targets will be Biden-era SEC guidance that makes it easier for investor activists to present shareholder proposals on environmental and social issues at corporate annual meetings. Expect Atkins to reverse the Biden policies and return to guidelines under Trump’s first administration that allow companies to reject ESG proposals if they don’t substantially affect operations.

Expect the Republican-controlled Congress to also weigh in, proposing legislation that would give corporations broad powers to reject shareholder proposals. That said, it’s not clear whether such a law could pass in the next two years, when the 2026 mid-term elections are expected to turn against the Republicans.

2. Climate disclosure. Atkins will also revoke a Biden-SEC regulation requiring publicly listed companies in the United States to disclose their Scope 1 and 2 (operational and energy) carbon dioxide emissions. The impact of this reversal will be muted, however, as climate disclosure rules take effect in California and in Europe, where about 3,000 U.S. companies operating in Europe will have to comply with climate disclosure rules under its Corporate Sustainability Reporting Directive (CSRD).

3. ESG fiduciary rights. And expect the Trump administration to reverse a Biden Department of Labor rule expressly permitting pension trustees to consider ESG issues in investment decisions. But the Trump rule will be contested in the courts, as sustainably invested pension funds make a legal case that ESG is fundamentally about improving financial assessment of financial risks and returns.

The takeaway: The Trump administration’s attack on shareholder rights will discourage investors from exercising their rights to file investor proposals on ESG issues. But on climate disclosure and fiduciary rights, this will create regulatory confusion more than a firm barrier to sustainable investing.

Shareholder proposals on ESG issues will drop in number and support

Shareholder collaboration on ESG issues will take a hit in 2025. Collaborations like the Climate Action 100+ shareholder network will lose clout, as policy changes and the chill from the Trump administration take hold. In 2024, large U.S. asset manager Franklin Templeton joined other managers Nuveen, Goldman Sachs Asset Management and AllianceBernstein in leaving the network, which coordinates shareholder pressure on corporations on climate issues.

According to Morningstar data, the number of ESG resolutions at U.S. companies rose sharply between 2021 and 2024, although overall support was 27% in 2024, down from 37% in 2021. The decline was largely due to lower levels of support from the three largest asset managers: BlackRock, Vanguard and State Street, together known as the Big Three. There has been some pushback from at least one asset owner – PGGM – which has dropped some managers that are not meeting the Dutch pension fund’s expectations for ESG engagement.

The takeaway: In 2025, look for fewer but better-focused ESG proposals that can command larger support from asset owners and managers.

Long-term ESG-focused investors will stay the course

 Despite these negative trends, 50% of long-term ESG-oriented investors – including asset managers, funds and owners employing sustainable finance strategies – said they plan to maintain their current level of ESG activity in 2025, while 29% said they plan to increase it moderately and 10% plan a significant expansion, according to a survey by the U.S. Sustainable Investment Forum (US SIF).

Many Republican-led states are dropping companies with ESG policies as eligible managers for their pensions funds. But large managers like the Big Three have substantial accounts with Democratic-led states and European clients that are under their own stakeholder and regulatory pressure to meet climate and ESG targets. US SIF reported that sustainable assets under management at the end of 2023 were US$6.5 trillion, representing 12% of total investment assets in the United States.

The takeaway: ESG strategies have become embedded in a large proportion of the long-term asset-owner and -management sectors. Expect continued growth of sustainable finance assets by these investors in 2025, especially by pension funds weighing the evolving risks of heat, floods and storms and economic transformations from climate change.

Related

Sustainable investors are split on just how bad Trump will be for the green economy

Death of ESG is greatly exaggerated, say pension managers

Why this investor advocate quit filing oil and gas shareholder proposals

Shorter-term mutual fund and ETF investors will cautiously re-enter the sustainable funds market

Unlike core ESG investors committed to long-term sustainable strategies, interest by small institutions and individuals with shorter investment horizons has waned in recent years. Inflows in sustainable mutual funds and exchange traded funds (ETFs), two products popular with these investors, hit US$160 billion in the fourth quarter of 2021, triggered by low interest rates and climate-friendly policies in the European Union. But these dropped precipitously starting in 2022, when central banks ramped up interest rates, the Ukraine war drove up energy prices, and Europe established more stringent anti-greenwash fund-disclosure rules.

By the second quarter of 2024, Morningstar estimates that net inflows had dropped to US$6.3 billion, with the United States registering net outflows. Not surprisingly, Morningstar estimates there were 246 new sustainable funds launched in the first three quarters of 2024, down from 444 in the same period in 2023.

But there are early signs this outflow is beginning to turn around. Global flows into sustainable mutual funds and ETFs hit US$10.4 billion in net new money in the third quarter of 2024, driven largely by reduced outflows from the United States. It appears investors are gaining comfort with the new European rules and longer-term prospects for green stocks, although there was a sell-off of clean energy immediately after the U.S. election.

The takeaway: Expect sustainable mutual fund and ETF inflows to bottom out in 2025 and investors to return to these products, as long-term interest rates improve conditions for green bonds and climate-friendly stocks and European investors become more familiar with ESG fund-disclosure rules.

Europe will simplify, not throw out, ESG disclosure rules

European Commission President Ursula von der Leyen has proposed an “omnibus” reform of corporate and finance disclosure rules aimed at simplifying the complex web of ESG reporting requirements imposed by the European Union. “The questions we are asking, the data points we are collecting – thousands of them – is too much,” she said at a meeting of EU heads of state last year.

The political balance at the European Parliament shifted to conservative parties in 2024 elections, sparking a fear of wholesale disclosure deregulation. But with thousands of companies investing in resources to meet the stringent rules this year, the European Commission would invite significant blowback and market confusion if it threw out the reporting regime.

The takeaway: Look for the European Commission to overhaul the information requirements in 2025, in a spirit of getting to the core of sustainability outcomes, not tossing out the whole framework in a U.S.-style attack on ESG.

Canada will become a leader on transition investing

Canada is expected to appoint an arm’s-length council in 2025 to oversee a new green and transition taxonomy, an official standard for banks, funds and asset managers on green and transition investments.

One of the big questions is whether gas projects like liquefied natural gas infrastructure will qualify for the “transition” label. Guidelines set by the federal government in 2024 rule out new gas production for the transition label. Existing natural gas production displacing coal could be transition-eligible but would have to be aligned with a global temperature rise of no more than 1.5°C. These are important marching orders for the arm’s-length council, which will likely follow the federal mandate to rule out projects with significant carbon lock-in.

The takeaway: The taxonomy will help Canada to become a leader in transition projects in areas such as green steel and cement and the gradual phaseout of fossil fuel power with clean energy. That is, if the taxonomy is even finalized under the precarious situation facing the current government.

Canada will impose mandatory full-scope carbon emission reporting – but it won’t come in 2025

In December, the Canadian Sustainability Standards Board (CSSB) adopted international accounting rules calling on Canadian corporations to report the full range of their carbon emissions. That is, not only Scopes 1 and 2 emissions from operations and energy, but also Scope 3 emissions from end uses.

However, the rules include a two-year delay for Scope 1 and 2 reporting and a further year for Scope 3 reporting. It’s now up to the Canadian Securities Administrators, the umbrella organization for securities commissions, to decide whether to follow through on the CSSB recommendation and make full carbon-emission disclosure mandatory.

The takeaway: Alberta will almost surely fight full disclosure, since the oil and gas industry is responsible for about 30% of Canada’s total emissions, particularly on Scope 3. But I’m going to go out on a limb here and predict that the other provinces will win this battle, backing the CSSB’s carefully crafted consensus to bring Canada into alignment with Europe and many other jurisdictions in 2027 and 2028.

The big picture

Stronger-than-expected anti-ESG attacks in the United States or Europe could put a very cold chill on green investing in 2025, but right now it looks like sustainable investing has built sufficient strength in the last decade to withstand the growing conservative backlash against it.

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).

The post Seven sustainable finance predictions for 2025 appeared first on Corporate Knights.

While opinions may diverge on the best policy approaches, one truth remains: achieving these goals demands substantial financial investment. And while government action is crucial, relying solely on public spending will not suffice.

At the Sustainable Finance Forum this week in Ottawa, we are bridging the gap between the capital providers, the policymakers and the people with innovative ideas to scale investments that address these urgent priorities.

Canada has made significant strides recently, but we have merely scratched the surface of our potential. Other jurisdictions around the world are advancing rapidly by establishing sustainable finance policies to support investment in environmental and social priorities, including Europe, Australia, Asia, and even U.S. states like California, the world’s fifth-biggest economy.

So, can Canada seize this opportunity for the benefit of Canadians? We think so. Here are five transformational strategies we’re exploring during our time in Ottawa.

Adopt a green and transition taxonomy

In October, the federal government announced its plan to develop a green and transition “taxonomy” to provide a clear definition for a green or transition investment, helping eliminate confusion and prevent misleading claims about environmental benefits. Supported by Canada’s 25 largest financial institutions, this initiative is crucial for accelerating capital flows to climate solutions.

An important next step will be for the taxonomy governance structure to be announced and decarbonization strategies established for major industrial sectors identified by the Sustainable Finance Action Council. More than 40 global jurisdictions have taxonomies or will soon, with Australia drawing directly from Canada’s Taxonomy Roadmap Report. And they are already seeing the benefits. The European Union, for example, has had a considerable boost in taxonomy-aligned investments.

Make climate disclosures mandatory

Investors need the full picture to make climate-smart choices. That means companies must come clean about their climate risks and carbon footprints, particularly large, heavy emitters. While some do this voluntarily, quicker progress is needed.

Some Canadian companies will also be subject to reporting based on existing international regulations. But it’s time to make disclosures mandatory in Canada. Without decisive Canadian leadership, our companies will be at a disadvantage trying to navigate international reporting on their own.

Additionally, we expect the forthcoming Canadian Sustainability Standards Board reporting standards to be closely aligned with the International Sustainability Standards Board in terms of rigour, scope and timelines. Canada is a small market competing for global climate capital; we need to level the playing field.

Work with social innovators 

Canada’s social innovators are poised to tackle pressing challenges. Deploying repayable capital among social purpose organizations – a core focus of the Social Finance Fund program – is vital in empowering those who are addressing some of our toughest grassroots challenges.

But capital alone is not enough. An ecosystem approach is needed to improve market access, improve data and reduce regulatory barriers. As a first step, ensuring that social purpose organizations are eligible for business support programs and expanding existing programs to incorporate social and environmental objectives will support non-profits and co-operatives in addressing issues like housing and food security.

Strengthen social finance intermediaries and capital supply

Investing in social finance intermediaries like the Canadian Co-operative Investment Fund or Raven Indigenous Capital Partners is critical for building capacity and developing infrastructure. Introducing legislation like the U.S.’s Community Reinvestment Act could create durable support to seed Canadian community-development financial institutions, leveraging Canada’s strengths in credit unions. Additionally, tax incentives for qualified impact investments can increase supply and lower capital costs. The use of the federal balance sheet to de-risk larger impact-bond issuances is an urgent need and obvious opportunity for growth.

Update charities regulations and legislation

Canada’s endowment disbursement quota (DQ) could be modified to incentivize the deployment of endowed capital by philanthropic foundations into impactful ventures. Strengthening guidance for program-related investments will align Canada’s regulatory framework more closely with that of the United States, which allows those investments to offset DQ requirements effectively.

The time to act is now

To achieve these priorities and more, Canada must act decisively. By adopting the right regulations and creating supports such as tools, data and education, we can position ourselves for success. Without these measures, we risk falling behind in a fast-evolving market. The upcoming federal budget is an unmissable opportunity to build a financial system that is resilient, forward-looking and sustainable. This is our moment to step up and join world leaders in sustainable finance.

Maya Saryyeva is interim executive director at the Institute for Sustainable Finance at the Smith School of Business at Queen’s University. Graham Singh is CEO of Relèven and vice chair of the Table of Impact Investment Practitioners. Michael Toye is executive director of the Canadian Community Economic Development Network. The authors’ organizations are presenting partners of the Sustainable Finance Forum, working in the fields of sustainable finance, social finance and impact investing, respectively.

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Anticipating juicy growth in corporate earnings under the new administration, the U.S. stock market closed Friday up almost 5%, the biggest weekly percentage gain in a year. But clean energy stocks sank, as investors feared that Joe Biden’s pro-renewable program will give way to “drill, baby, drill” policies under Trump.

The decline in clean energy stocks despite an otherwise buoyant market confirms the uncertain reality facing sustainable finance. For the last two years, Republicans have waged a battle against environmental, social and governance investing, prompting many states to boycott ESG managers.

Before the vote, the very thought of a second Trump presidency inspired dread for many in the ESG community. But now a week after voting day, two schools of thought have emerged on how the Trump effect will play out.

While some industry leaders believe the sustainable finance community should lawyer up for a legal fight of mammoth proportions, others take a softer view. The latter group argues that the price advantage of clean energy, the resilience of ESG investments and pro-climate political considerations will prove stronger than the new administration’s policy attacks.

The pessimists: One billion tonnes more CO2

“The U.S. election is going to be a headwind for climate,” said Rebecca Mikula-Wright, CEO of the Investor Group on Climate Change, at the group’s annual summit in Melbourne, Australia, on November 7. Some other attendees agreed with the downbeat assessment.

“Donald Trump likes emissions,” said Greg Sharenow, managing director and portfolio manager at U.S-based asset manager PIMCO. “His positions are going to be distinctly supportive of additional emissions.”

If Trump makes good on all his climate and energy promises, it could delay the energy transition in the United States by 10 years or more, according to energy consulting firm Wood Mackenzie.

“A Trump administration means radical changes for tariffs on imports, climate policy and international affairs,” writes Simon Flowers, Wood Mackenzie’s chair and chief analyst. He says that Trump’s election along with probable Republican control of Congress makes it more likely there will be a delayed climate transition. “The U.S. will backtrack on net-zero.”

Trump will follow through on his promise to withdraw from the Paris Agreement on climate change, Flowers says in a post-election blog. The result will be felt as early as this week when the U.S. voice “will carry much less weight” at the United Nations COP29 climate summit.

In a report in May, Wood Mackenzie predicted that Trump policy changes would result in reducing low-carbon investments by US$1 trillion, resulting in one billion additional tonnes of carbon dioxide emissions by 2050. The Trump changes would hit the industry with a double whammy by removing tax credits and subsidies under the Inflation Reduction Act while raising costs through a general tariff on steel and equipment.

Trump is also likely to allow more permits for liquefied natural gas projects, new regulations favouring fossil fuels over renewables (blue rather than green hydrogen, for example) and rollbacks on methane caps and power-plant and vehicle-emission standards.

Natural gas demand will be 6% higher by 2030, the stock of electric vehicles will be 50% lower, and shutdowns of coal-fired power plants will be delayed under these changes, Wood Mackenzie says.

The optimists: Data centre demand, political pressure may dampen Trump effect

Some fund managers, asset owners and clean energy executives are taking a somewhat more positive view, saying that Trump’s policy actions will be blunted by political considerations and the sheer market demand for renewables.

“Policy is not the only driver of the energy transition, and the U.S. is not the only market for companies across the space,” writes Alex Monk, portfolio manager of global resource equities at Schroders. “While the shifting U.S. policy landscape is undoubtedly unhelpful, it should not distract from the strength of other forces encouraging investment in the space.”

The recent World Energy Outlook report from the International Energy Agency forecasts that renewable power capacity will rise from 4,250 gigawatts today to nearly 10,000 gigawatts in 2030, which together with nuclear power will generate more than half of the world’s electricity and create peak demand for fossil fuels by 2030. The report states that power demand is soaring for industrial consumption, electric mobility, cooling, and data centres and artificial intelligence.

Renewable power is well positioned to meet this demand because it has a huge cost advantage, says Connor Teskey, CEO of Brookfield Renewable Partners, one of the world’s largest clean energy companies.

Even if Trump cancels investment tax credits under the Inflation Reduction Act, Teskey says that power producers like Brookfield will be able to offset those credits with rate increases to utilities or corporate customers. “The key point there is because onshore wind and solar are so much cheaper than the alternatives, there is room to do that and still be the cheapest form of bulk electricity production,” he said in an investor call on November 8.

Political pressure from Republican members of the House will also likely reduce Trump’s ability to cut all tax credits and subsidies under the Bipartisan Infrastructure Law and the Inflation Reduction Act. Eighteen House Republicans have signed a letter asking for the tax credits to continue to protect wind, solar and battery projects already underway in their districts.

“President Trump will face a bipartisan wall of opposition if he attempts to rip away clean energy incentives now,” says Dan Lashof, director of the World Resources Institute.

Sustainable investment will be under attack. Can it survive?

Biden-administration regulations encouraging ESG investment and engagement are also in Trump’s crosshairs.

A Bloomberg Intelligence report issued after the election suggests that Trump will seek to limit the ability of shareholders to file proposals to companies on ESG matters. Recent more lenient rules from the Securities and Exchange Commission (SEC) have increased the number of ESG proposals by 47% since 2021.

It’s expected that Republican members of the House will reintroduce legislation allowing corporations to exclude ESG shareholder proposals from a vote at their annual meetings.

Before the election, Bryan McGannon, managing director and head of policy for the US Sustainable Investment Forum (US SIF), said that he is quite concerned about this potential legislation, because it would be more difficult to contest than regulation and would require Democratic majorities to repeal. “Shareholder rights is the thing [Republicans] will go after, and they have been trying to for ages,” he said.

The Bloomberg Intelligence report also says that Trump will revoke a Biden-administration rule permitting pension fund trustees to explicitly consider ESG issues in their investment decisions. A recent SEC rule requiring public companies to disclose their Scope 1 (facility) and 2 (energy) emissions will also be on the chopping block, the report says. “The bottom line is the Trump administration is anxious to undermine these ESG-related initiatives,” Bloomberg Intelligence analyst Rob Du Boff says.

However, the real impact of these two rollbacks may not be as bad as many fear.

A Trump regulation banning ESG consideration would most certainly be tested in the courts, McGannon said, and he believes it would not be upheld given the financial industry practice of using ESG for pecuniary issues of risk and return.

Related

What will the U.S. election mean for sustainable finance?

ESG squeezed between Republican attacks on ‘woke capitalism’ and climate investors

How fossil fuels have surged under both Trump and Biden-Harris administrations

And on carbon dioxide reporting, corporations are facing a growing trend worldwide to disclose CO2 emissions and risks, including in California, where CO2 reporting rules went into effect last year. U.S. companies operating in Europe will be subject to similar rules under the Corporate Sustainability Reporting Directive. McGannon said that large segments of corporate America will be subject to climate reporting regardless of what happens at the SEC.

Memo to ESG investors: Get a lawyer on speed dial

In a note to clients the day after the election, investment manager Jefferies Financial Group said there could be federal litigation based on the untested claim that financial institutions and climate activists have colluded to exert ESG pressure on businesses. “We’d encourage all ESG fund managers to have a lawyer on the team, or on speed dial,” the note said. “General counsels are in the ear of CEOs, frightened about legal retaliation to ESG initiatives.”

These attacks will have a chilling effect on ESG managers, said Jeff Gitterman, CEO of Gitterman Wealth Management, in an interview with Institutional Investor. “You are going to see ESG managers backing off more on how they market and publicly speak about what they are doing,” he said, adding that they will continue to incorporate ESG into investment decision-making, even if they don’t talk about it publicly.

US SIF CEO Maria Lettini is taking a guarded approach to the new administration and Congress. “Sustainable investing identifies unmanaged risks and unlocks investment opportunities in order to safeguard and increase long-term portfolio value,” she said in a post-election statement. “Investors require transparency through clear reporting requirements, the ability to engage the companies they own on financially material issues, and certainty that policymakers will support robust climate action. That remains true regardless of the political landscape. We commit to working with the next administration and other newly elected officials across the United States to advance a more just and sustainable American economy.”

The sustainable investment community looks to be taking a slow, cautious approach in dealing with the new administration. But it will also need to stand ready with lawyers and lobbyists when the policy battles begin.

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).

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