A solar panel with a  snowy mountain and green forest in the background.

Summary

  • Environmental, social and governance issues form the basis of ESG, a type of value-based investing. When analyzing a potential investment, investors look out for companies that benefit the planet and the people it impacts. Data shows companies that address these core values will have a higher success rate, ensuring the longevity and security of that investment.
  • Solar power is a trending ESG area because it targets environmental and social concerns, including reducing emissions, tackling pollution and increasing employment. Canada may be an ideal place to invest in solar power. Despite its solar sector being small compared to other renewables like hydropower, it has enormous growth potential.
  • From an ESG analysis perspective, Canada’s solar market impacts employment levels and reduces emissions, which all play a role in the health and well-being of Canadians.

Introduction

In fact, research shows that 85% of the general population and 95% of millennials have an interest in sustainable investments.

Investing used to be all about assessing what would produce the most financial gain. In the past decade, however, value-based investing has gained a lot of traction, and as with any thriving industry, it must pivot to meet changing demands. In fact, research shows that 85% of the general population and 95% of millennials are interested in sustainable investments. The industry has started realizing that investors have values, not just wallets. So when assessing where to invest their capital, more people and businesses are considering what impact their investment may have on communities and the planet. In short, the investor’s values should coincide with the core beliefs of the company they invest in. This article will discover what ESG investing is, how it has evolved and why the Canadian solar market is poised for growth among the rise of ESG investments.

What Is ESG Investing?

ESG analysis has become an important aspect of identifying material risks and growth opportunities as it seeks to gain a wider perspective of the companies in which they invest.

Environmental, social and governance (ESG) investing analyses a potential investment in the areas mentioned above to ensure money is spent in companies benefiting the planet. This approach may differ from traditional financing, which applies financial factors to the analysis process. ESG analysis has become an essential aspect of identifying material risks and growth opportunities as it seeks to gain a broader perspective of the companies in which they invest. This modern approach has triggered a period of better investors who use their moral compass to guide their investment decisions.

Environmental considerations examine how a company accounts for its environmental impact and what it does to conserve the natural world. Further, social impacts will assess how a company approaches diversity and relationships within its community. Lastly, the analysis will look into governance issues to understand how a company manages its operations. While there are various considerations under each umbrella, these three categories tend to intertwine.

When examining the potential investments, there are many areas an ESG analysis may recognize; some of these include the following:

Environmental:

  • Climate change
  • Carbon emissions
  • Pollution
  • Deforestation
  • Waste management
  • Energy efficiency
  • Biodiversity

Social:

  • Data protection
  • Data privacy
  • Diversity
  • Community relationships
  • Human rights
  • Employee engagement
  • Customer satisfaction

Governance:

  • Bribery and corruption
  • Board composition
  • Whistleblower schemes
  • Political contributions
  • Executive compensation

The Chartered Financial Analyst (CFA) report assessed how ESG issues affect a company’s longevity. In their statement, the authors said that companies that manage ESG areas are likely to “perform better over the long term” as they may avoid costly conflict, attract quality team members, strengthen their relationships with suppliers and communities they interact with. The report concludes that addressing ESG issues will produce a “higher expected return or a lower expected risk” that positively reflects investors and stakeholders.

How Does ESG Investing Differ From Other Values-Based Investing?

…SRI, ESG and impact investing assets went from $3 trillion in 2010 to $17.1 trillion by the start of 2020.

ESG investing is a strand of value-based investing that grew from other investment methods such as Socially Responsible Investing (SRI). According to a trends report from the US SIF: The Forum for Sustainable and Responsible Investment, SRI, ESG, and impact investing assets went from $3 trillion in 2010 to $17.1 trillion by the start of 2020.

While these investment philosophies are similar, they do have their differences. ESG investing aims to understand a company, its values and actions in a multifaceted way. In contrast, SRI uses value judgement and negative screening to make an investment decision. SRI tends to exclude business that doesn’t align with the investor’s values; for instance, in the past, alcohol, tobacco, gambling and weapons were categorized as “sin stocks” to avoid further investments into these potentially harmful sectors. A contemporary ESG and SRI exclusion includes fossil fuel companies.

While similar to SRI, ESG investing focuses on businesses that intentionally benefit the community and environment. An example may include buying stocks in a company switching to renewable energy, which positively impacts the environment.

Alongside SRI and ESG investing, impact investing is similar in its aim to invest in companies taking an active role in environmental conservation and community support. Impact investing looks for measurable evidence that a company is worth investing in, such as the number of schools built or a quantifiable reduction in carbon footprint.

An infographic depicting the various factors in ESG investing

Why Invest in Solar Power?

The renewables market has already shown exponential growth over the past decade as world leaders move funds into clean energy projects.

With the rise of ESG investing, some key trends are emerging from global warming to social unrest. Within these, we can deduce that individuals and investors are concerned about the health of the planet and future generations.

Renewables play a significant role in the fight against climate change, as they are crucial to displacing fossil fuels and reducing greenhouse gas emissions. The renewables market has already shown exponential growth over the past decade as world leaders move funds into clean energy projects. What’s more, solar power has been a widely distributed form of renewable power globally, with experts expecting it to grow 25% in 2022—a notch above its previous average 18% year-on-year growth rate.

Why Should Investors Consider the Canadian Solar Market?

Clean Energy Canada expects a 50% incline in green energy jobs, providing stable employment for Canadians, boosting the economy and making the planet cleaner.

When considering investing from an ESG point of view, Canada’s solar market is an ideal investment. This up-and-coming sector addresses key environmental and social issues that are relevant to today’s population.

Canada’s Solar Market is Growing Faster than Other Renewables

Canada is known for its vast hydropower sector; it is one of the top producers of hydroelectricity in the world. Currently, Canada sources 18.9% of its energy from renewable power, and moving water makes up 59.3% of electricity generation. That said, their solar power market is growing the fastest, with solar thermal power growing by 13.8% since 2004.

Despite its Cold Climate, Canada May Have Great Solar Potential

Solar photovoltaic (PV) panels use the raw energy from the sun to generate renewable power. Naturally, many people assume the hotter a country’s weather conditions, the better it is for solar generation. However, despite cold conditions, Canada may be an ideal place for generating solar power.

As solar PV cells convert radiation from the sun into electricity, it doesn’t require the temperature to be high. In fact, solar panels may even operate more efficiently in cooler climates providing that there is an ample amount of light. Even in snow conditions, the white surface may help reflect more sunlight to the cells and increase efficiency. Moreover, sunlight penetrates through some clouds, making overcast days good for solar power. However, a primary hindrance for solar power generation is thick cloud cover, which may reduce solar panels’ energy production.

Canada’s Clean Energy Job Market Is Expanding

When it comes to ESG investing, a key consideration is how a company impacts the community and the people it affects. The solar market and clean energy, in general, are paving the way for more jobs. A solar farm may employ up to 100 employees in maintenance, monitoring and distribution, to name a few roles, opening jobs across Canada and in local communities.

Clean Energy Canada expects a 50% increase in green energy jobs, providing stable employment for Canadians, boosting the economy and making the planet cleaner. Therefore, as Canada’s clean energy job market is booming, solar power may become an excellent investment regarding social impact.

Solar Power Can Reduce Carbon Emissions

Environmental impact is critical when approaching ESG investing, making the Canadian solar market an ideal investment. As Canada seeks new ways to reduce emissions, renewables like wind and solar have become a priority because they do not produce greenhouse gases. According to a report from Our World in Data, 36 billion tonnes of CO2 get released into the atmosphere yearly.

Switching to renewable energy like solar PV panels can lower individual or commercial carbon footprint. Many studies have reported on the low-carbon emissions associated with the solar power industry. Not only does climate change affect the environment, but it also has a detrimental effect on health. Natural disasters, air, soil and water pollution are all participating in the decline of human health. That said, investing in the Canadian solar market may elicit positive impacts, as it addresses environmental issues and social and well-being issues.

The Canadian Solar Market Has Room to Grow

Solar capacity is increasing yearly, but its share of Canada’s electricity generation is still relatively low compared to other renewables. According to the Government of Canada, solar photovoltaic makes up 1.4% of the country’s electricity generation. That said, being the fastest-growing source of electricity in Canada means it has substantial room for growth, especially as it is the cheapest electricity to generate.

Furthermore, technological advancements mean solar storage batteries are more efficient than ever. While previously nighttime was a hindrance for solar users, batteries have allowed people to utilize solar energy all day and night. As the cost of equipment has dropped by 99% in four decades, it’s no wonder demand is high and solar power is on a steady incline.

Closing Thoughts

ESG investing has turned a page for what was previously a capital-focused industry. Although financial gain is still the goal, investors have pivoted their strategy to meet the demands of the general population and changing needs of the planet.

As the data shows, companies who prioritize ESG issues tend to perform better long term, increasing their longevity and security as an investment. As focus turns towards climate change and renewables, the Canadian solar market will likely continue to climb as it addresses those strong ESG values.

Frequently Asked Questions (FAQs)

What is ESG investing?

Environmental, social and governance (ESG) investing is a method of analyzing potential investments against these categories above. The aim of considering ESG issues is to financially support the growth of businesses playing an active role in making the world a better place. Some areas of interest may include how carbon emissions are managed and offset, approach to waste management, employee engagement, community support and customer satisfaction.

 

What’s the difference between ESG, SRI and impact investing?

Socially responsible investing (SRI), impact, and ESG investing are all strains of value-based investing. This approach considers a company’s broader role in environmental conservation, well-being and community support. That said, they differ slightly in their approaches. SRI analyses base investment decisions by excluding companies that don’t align with investor values. For instance, they will use negative screening to rule out companies in the alcohol, taboo and gambling sectors if they go against the investor’s values.

In comparison, ESG investing grew from SRI as it also aims to align with investors’ morals. However, ESG examines how a company actively benefits their communities, the planet and staff operations. ESG looks for active companies trying to make the world better. Finally, impact investment tends to focus on measurable targets, such as how many schools a company has built or the number of emissions its offsets.

 

What are the ESG investment trends?

Some significant trends in the ESG investment market include issues regarding social unrest and climate change. More people are basing buying decisions on sustainability factors and thus, holding leaders and businesses accountable for their impact on the planet and the people they interact with. With this in mind, it’s no wonder investors are beginning to seek out companies with the best ESG analysis because those will be the ones that attract today’s on-demand consumers.

 

Why invest in the Canadian solar market?

Investing in solar power meets multiple criteria when approaching it from an ESG investment perspective. With environmental and social needs firmly met, it’s easy to see why Canada’s solar sector is poised for growth. Despite the 1.4% share of electricity generation, solar power is one of the fastest-growing renewables in Canada and has a lot of room for growth in the next few years. Not only does it reduce carbon emissions, but the solar sector has a positive impact on the economy, employment and human health.

 

Are renewables a profitable sector to focus investments in?

If the current trends in ESG investing are anything to go by, then yes, renewables have massive potential for investors. Despite that, experts expect the green energy industry to grow over the next few years as world leaders aim to move away from fossil fuels and towards cleaner energy choices like renewables.

 

Westbridge Energy Corporation

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