1 – Objectives
1.1 THE FUND
The Green Municipal Fund (GMF) was established in the year 2000 by the federal government as a program of the Federation of Canadian Municipalities (FCM) with the primary purpose (the GMF mandate) of helping municipal governments leverage investments in sustainable projects and providing financing in the form of grants, loans and guarantees for eligible projects.
GMF’s endowed assets (the Fund) are invested in a diversified portfolio to meet the funding objectives that have been established by the federal government, under the oversight of the GMF Investment Committee (the Committee).
1.2 THE SUSTAINABLE INVESTMENT POLICY
The Fund is invested to support both the GMF mandate and the Fund’s long-term investment horizon. The purpose of this Sustainable Investment Policy (the Policy) is to define a general framework for the investment of the Fund’s assets according to GMF’s mission.
This Policy outlines the GMF sustainable investment objectives as they relate to investment of the Fund’s assets. The Policy also establishes guidelines for external investment managers including the integration of sustainable investment considerations in the investment management process; proxy voting; proactive shareholder engagement, investment exclusions and inclusions; and reporting.
This Policy will be reviewed annually.
2 – Sustainable Investment Objectives
As first outlined in GMF’s Statement of Investment Beliefs, the Fund will strive to invest in assets that have the potential to result in significant environmental improvement on air, water and soil quality, address climate change adaptation and/or reduce greenhouse gas emissions. In addition to the potential environmental benefits, we will strive to invest in assets that provide potential economic and/or social benefits such as:
- protecting of human health;
- supporting community economic development;
- improving community quality of life;
- protecting natural assets and biodiversity;
- advancing principles of anti-racism, equity, and inclusion; and/or
- advancing reconciliation and environmental justice.
3 – Sustainable Investment Principles
The following sustainable investment principles and beliefs are central to GMF’s investment approach:
- We strive toward the integration of environmental, social and corporate governance (ESG) considerations into our investment management processes because of GMF’s environmental mission and because of our belief that consideration of these factors can contribute to superior risk-adjusted returns over the long term.
- An active exploration of sustainable investment opportunities is in keeping with the GMF mandate.
- Environmental responsibility, economic benefits and social benefits should be important factors in making investment decisions.
- As a long-term investor, GMF wishes to encourage investment managers and the businesses in which they invest to adopt sustainable investment practices, which can improve financial performance in the long run.
- Relevant information regarding the application of sustainable investment principles and approaches should be disclosed by the Fund’s investment managers.
- It is important that companies disclose high-quality, relevant, consistent, and comparable information around sustainability practices and ESG risks to allow for proper analysis, evaluation and comparison by current and prospective investors. GMF expects managers to exert influence on companies, to the extent possible, to encourage such disclosures.
4 – Sustainable Investment Approach
Given the structure of the Fund, which exclusively uses external investment managers for its invested assets, all aspects of the sustainable investment approach, except for the reporting component covered further within this section, are fully delegated to the Fund’s investment managers. The Committee receives regular reporting from the managers, in order to provide independent oversight from the GMF perspective.
4.1 ESG INTEGRATION
ESG integration refers to the systematic inclusion of ESG factors and considerations in the investment management process, alongside traditional financial analysis and portfolio management.
The meaningful integration of ESG factors within the investment process is a key criterion in the selection of external investment managers. Emphasis is given to investment firms and teams with a sustainable investment policy, which formalizes ESG integration, and with the capabilities to operationalize said policy.
Moreover, there is a strong preference for the consideration of ESG factors which support the GMF sustainable investment objectives, and for the availability of reporting to support these considerations.
In selecting and partnering with investment managers, GMF will ensure that their sustainable investment policies do not conflict with, and are aligned, to the extent possible, with this Policy. GMF will hold its investment managers accountable to this Policy and to their own sustainable investment policies through engagement, reporting and monitoring.
4.2 PROXY VOTING
Proxy voting, in the context of sustainable investing, refers to the voting of shareholder proxy ballots (for public equity investments only) in a manner which is guided by ESG considerations.
The voting of GMF proxy votes is delegated to the Fund’s investment managers. Nonetheless, it is expected that investment managers take ESG considerations into full account when exercising proxy votes. Moreover, there is a strong preference for proxies to be voted in a manner which supports the GMF sustainable investment objectives, as well as which promote improved corporate practices with respect to ESG considerations and greater disclosure and transparency around these factors. GMF expects to receive an annual report from its managers detailing how they have voted on environmental issues during the previous year.
4.3 PROACTIVE ENGAGEMENT
Proactive engagement refers to investors engaging in dialogue with management and the boards of directors of current or prospective portfolio companies, and if deemed necessary, filing proposals to influence corporate behavior as it relates to ESG considerations and sustainable development policies and practices.
The Fund’s investment managers are strongly encouraged to proactively engage with portfolio companies on environmental issues. Furthermore, there is a strong preference for proactive engagement which supports the GMF sustainable investment objectives. GMF expects to receive an annual report from its managers detailing how they have engaged with portfolio companies on environmental issues during the previous year.
4.4 INVESTMENT EXCLUSION
Investment exclusion, in the context of sustainable investing, refers to the systematic exclusion of certain companies, industries, projects or countries, based on non-financial considerations. The GMF sustainable investment approach does not currently exclude any investments.
4.5 INVESTMENT INCLUSION
Investment inclusion refers to the addition of investments specifically targeting GMF’s mission. As part of its annual reporting, GMF expects managers to produce or assist GMF with the production of reporting which details how much of GMF’s portfolio aligns with its sustainable investment objectives.
4.6 REPORTING
The Committee uses investment manager reporting as a key tool in the assessment of whether the investment manager is adequately applying and respecting the Policy, as well as how the investment portfolio is positioned with respect to the GMF sustainable investment objectives.
Information that may be requested annually from the Fund’s investment managers includes:
- Their sustainable investment policy (or ESG policy) and any amendments to said policy
- A demonstration of how the investment manager’s sustainable investment policy is integrated within their investment process
- The proxy voting record on environmental issues
- An explanation of how this Policy is integrated within the investment manager’s mandate, where possible, and an explanation with respect to the aspects that have not been integrated
- Proactive shareholder engagement initiatives over the period
- Portfolio ESG metrics, such as ESG scores (third-party or proprietary) or carbon footprint
- Portfolio positioning with respect to the GMF sustainable investment objectives
5 – Roles & Responsibilities
5.1 FCM
FCM staff recommends the Policy and all amendments to the GMF Investment Committee and FCM’s Board of Directors and ensures that the most recent version of the Policy is made available to the Fund’s investment managers.
FCM staff also ensures that reporting is received which can allow for the evaluation by the GMF Investment Committee of the investment managers’ application and respect of the Policy, to the extent possible.
5.2 GMF INVESTMENT COMMITTEE
The GMF Investment Committee (the Committee) and FCM Board of Directors approves the Policy and all subsequent amendments. The Committee also reviews investment manager reporting and all other relevant information to ensure the adequate application and respect of the Policy and makes decisions regarding actions required in the event an investment manager’s practices in this regard are deemed inadequate.
The Committee actively engages with investment managers and our investment consultant on issues and developments in sustainable investing to encourage the fuller application of ESG principles and objectives.
The Committee has the authority to act, should the content or resulting implications of the investment manager reporting not be in line with expectations or minimum requirements.
COMMITTEE MEMBERS RESERVE THE ABILITY TO PROACTIVELY ENCOURAGE AND DISCOURAGE SPECIFIC INVESTMENTS.
5.3 INVESTMENT MANAGERS
The Fund’s investment managers apply and respect the Policy in carrying out their investment mandates, to the extent possible as mutually determined between themselves and FCM at the outset of the mandate and over time.
Managers will also engage in a dialogue with the Committee on issues and developments in sustainable investing.