Shortlisted for PRI Awards 2024: Innovation in Responsible Investment Strategy
Organisation: Innocap
Signatory type: Investment manager
HQ country: Canada
Other responsible organisation:
Finance Montréal
The approach, initiative, or process
The asset management sector plays an increasingly important role in building a sustainable economy. Its impact spreads beyond the immediate financial ecosystem, serving as a catalyst for innovation across industries. To meet today’s social and environmental challenges, it was necessary to build a new investment vehicle that would enable institutional investors to more effectively direct capital toward sustainable solutions. Invested in a common mission, 12 major Quebec financial organisations have teamed up to launch Investi, the first investment fund created to benefit the sustainable finance ecosystem. Through its innovation fund for sustainable finance, Investi invests in experienced managers who offer innovative sustainable investment strategies. Investi aspires to inspire the financial sector to adopt best practices in ESG integration and impact investing.
The Investi initiative
Investi is an initiative led by Innocap, the global leader in managed account platforms, and by Finance Montréal, Montréal’s financial cluster, with the collaboration of 10 leading institutional investors (CDPQ, Trottier Family Foundation, Fondaction, Fonds de solidarité, Samara, Beneva, Optimum, National Bank Investments, Desjardins and Bâtirente). This group strongly believes that it is through collaboration that we can break the most common barriers to innovation and allow institutional investors to allocate more assets, more quickly, to new and innovative sustainable investment approaches.
For both asset allocators and asset managers, there can be significant barriers to innovation in sustainable investment. Constraints linked to investment policies, such as performance history criteria (at least three years), the size of the investment fund, etc., limit the number of institutional investors capable of supporting strategies in their early stages of development. Investi provides a solution by enabling institutional investors to pool assets to invest in innovative strategies at launch or early stage. Pooling investors’ assets also reduces the impact of the investment vehicle’s operating costs and helps mitigate manager selection risks through strong governance by committees composed of experts in investment and sustainability from Quebec’s sophisticated institutional investors.
Having raised over C$300 million in expressions of interest, Investi’s objective is to raise up to C$1 billion in assets by 2026 and to allocate all such assets to firms based in Quebec (or opening offices in Quebec), in order to foster the already booming Quebec sustainable finance ecosystem.
The fund benefits from the continuous collaboration and the unwavering involvement of its instigating investors as members of its governance and investment committees. Funds are allocated to experienced managers who offer innovative sustainable investment strategies in four distinct asset classes: equities, fixed income, hedge funds and private equity.
Selected firms are required to demonstrate ESG integration both at firm and strategy level. At the strategy level, managers must outline what sets them apart from their global peers in terms of ESG integration and sustainability. This is achieved through consideration of ESG materiality criteria, shareholder engagement approach, ESG due diligence of portfolio companies, approach to voting rights and stewardship, monitoring of ESG and/or sustainability indicators, ESG risk management, accountability and transparency. Managers must also assess climate risk exposure of the assets and strategy and demonstrate how the strategy aims to reach its quantifiable commitments (e.g. GHG reduction).
To ensure a demonstrable impact on risk-adjusted returns, selected firms must have a robust investment process that has created strong added value and ranks favourably against comparable strategies. They must also have a verifiable performance track record of at least three years for a similar strategy. The fund’s core-satellite approach consists of experienced managers offering both proven value-added strategies and verifiable performance history along with strategies at the embryonic stage or with limited performance history but based on proven processes.
In February 2024, the fund announced the selection of its first two firms in the equity asset class: Manulife and Van Berkom. In May 2024, the selection for fixed income strategies included pioneering firms such as Addenda Capital, firms with expansion plans in Quebec such as Beutel, and large-scale firms such as Fiera Capital, all of which have a common desire to elevate their practices and position Montréal as a centre of excellence in sustainable finance. These firms stood out for their demonstrated financial performance and the robustness of their ESG approaches.
Investi believes that engaging with asset managers prior to and post selection is critical to sharing best practices and fostering a culture of continuous improvement. Furthermore, and to stimulate innovation in sustainable finance even further, Investi launched in 2024 its first Innovation Lab, a concertation table where investors study and assess, together with external experts from various horizons, how to invest at scale in up-and-coming or under-invested sustainability areas.
The measures to ensure transparency and generate outcomes
Investi is managed and operated by Innocap, which is responsible for the structuring, day-to-day oversight of fund activities, governance and management of advisory committees, due diligence reviews, monitoring of the portfolio and distribution.
Manager selection, structuring and monitoring of the fund are reviewed and assessed with committees composed of its largest local investors and ESG experts. The governance committee sets eligibility criteria, formulates recommendations based on ethical standards, reviews investment policies and establishes key performance indicators. Investment committees (equity and fixed income, hedge funds and private placements) review and discuss applications and portfolio construction and monitor accountability pertaining to those investments. Close Group Consulting (CGC), an independent and boutique ESG advisory firm, collaborates on the evaluation of funds and firms as well as their monitoring.
An important element of Investi’s governance structure is that ESG approaches and investment strategies are discussed within the same committee, ensuring ESG criteria are attributed the same weight as the evaluation of performance and other risks associated with the investment strategy.
In terms of sustainability outcomes, over C$300 million (and potentially C$1 billion) will be invested in about 20 firms with local managers offering the best approaches to ESG integration as well as innovative thematic and impact strategies. These managers, in turn, will direct significant capital flows to companies playing a crucial role in the fight against climate change, accelerating the transition to a green economy and helping to preserve biodiversity.
One of Investi’s main objectives is to catalyse capital from various institutional investors towards the most innovative sustainable approaches by allowing others to invest alongside its initial investors, hence creating the virtuous circle that will incentivise asset managers to develop new sustainable approaches. Investi also wants to reduce greenwashing by highlighting the best approaches as well as to reduce green-hushing by having a strategic communication plan that demonstrates that Quebec’s institutional investors are deploying substantial capital towards positive sustainability outcomes. Another expected outcome is increased knowledge of sustainable finance among Quebec asset allocators, and greater consideration of ESG factors in their investments.
Investi aims to provide investors with valuable metrics to assess their investments, which will include ESG risk reports as well as an impact report notably tracking the growth and maturity of the strategies in which it invests, job creation and Montréal’s global positioning as a sustainable financial centre.
PRI disclaimer: This case study aims to contribute to the debate around topical responsible investment issues. It should not be construed as advice, nor relied upon. It is written by a guest contributor. Authors write in their individual capacity – posts do not necessarily represent a PRI view. The inclusion of examples or case studies does not constitute an endorsement by PRI Association or PRI signatories.
Innocap disclaimer: The information contained herein is for informational purposes only and does not constitute professional advice and cannot be construed as such. Innocap does not in any way guarantee or otherwise provide assurance that the strategies, funds or investment vehicles mentioned herein currently are, or will in the future be, available for investment or, where applicable, that they are suitable investments. This document does not constitute and should not be construed as an offer or solicitation to enter into any transaction made by Innocap in any jurisdiction. Before entering into an investment, it is recommended to carefully examine all conditions, assess the risks and determine whether it is appropriate for your financial needs and objectives in all respects. It is also recommended to consult financial, legal and/or tax advisors before entering into an investment.
