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ESG rankings have no significant effect on investment performance of Canadian public companies

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From the Fraser Institute

By Steven Globerman

Despite claims to the contrary, the ESG rankings of publicly-traded Canadian companies have no significant effect on investment returns, finds a new study published today by the Fraser Institute, an independent, non-partisan Canadian
public policy think-tank.

“While government regulators and some industry executives promote the benefits of ESG investing, there’s no evidence of significant advantages for investors,” said Steven Globerman, senior fellow at the Fraser Institute and author of ESG Investing and Financial Returns in Canada.

Environmental, social and governance (ESG) is a movement designed to pressure businesses and investors to pursue larger social goals. In Canada, due to government securities regulation, publicly-traded companies must disclose ESG-related
information on a range of issues including environmental impact, human rights, and equity and inclusion.

ESG advocates claim that government-mandated ESG disclosures improve the financial performance of companies.
However, the study—the first empirical analysis of the relationship between changes in the ESG rankings of Canadian publicly-traded companies and equity returns— tracked 310 companies on the Toronto Stock Exchange from 2013 to 2022 and found no significant relationship between changes in ESG ranking (upgrades or downgrades) and financial returns, as measured by the price of shares and dividend income.

In other words, advocates for greater ESG disclosures cannot accurately claim—based on Canadian evidence—that requiring companies to provide more information for ESG rankings will significantly affect the financial performance of Canadian
investors.

“Better performance on ESG rankings simply does not translate into better financial performance for Canadian firms,” Globerman said.

  • ESG investing incorporates environmental (E), social (S), and governance (G) considerations into investment decisions. Until recently, ESG-themed investing comprised an increasing share of investments made by professional money managers and retail investors.
  • Financial industry executives and regulators who have promoted ESG-themed investing argue that it will enhance investment performance either by increasing asset returns and/or by reducing investment risk.
  • However, empirical studies, on balance, find no consistent and statistically significant evidence of a positive relationship between the ESG rankings of individual companies or portfolios of companies and the financial performances of those companies or investment portfolios.
  • Most empirical studies have focused on US-based publicly traded companies. To our knowledge, this study is the first to focus on returns to ESG-themed investing for Canadian-based public companies.
  • Using data from MSCI, a leading ESG ratings provider, we estimate the statistical relationship between changes in ESG rankings of companies and changes in equity returns for those companies using a sample of 310 companies listed on the Toronto Stock Exchange between 2013 and 2022.
  • Our study finds that neither upgrades nor downgrades in ESG ratings significantly affect stock market returns.

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Alberta

Ford and Trudeau are playing checkers. Trump and Smith are playing chess

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By Dan McTeague

 

Ford’s calls for national unity – “We need to stand united as Canadians!” – in context feels like an endorsement of fellow Electric Vehicle fanatic Trudeau. And you do wonder if that issue has something to do with it. After all, the two have worked together to pump billions in taxpayer dollars into the EV industry.

There’s no doubt about it: Donald Trump’s threat of a blanket 25% tariff on Canadian goods (to be established if the Canadian government fails to take sufficient action to combat drug trafficking and illegal crossings over our southern border) would be catastrophic for our nation’s economy. More than $3 billion in goods move between the U.S. and Canada on a daily basis. If enacted, the Trump tariff would likely result in a full-blown recession.

It falls upon Canada’s leaders to prevent that from happening. That’s why Justin Trudeau flew to Florida two weeks ago to point out to the president-elect that the trade relationship between our countries is mutually beneficial.

This is true, but Trudeau isn’t the best person to make that case to Trump, since he has been trashing the once and future president, and his supporters, both in public and private, for years. He did so again at an appearance just the other day, in which he implied that American voters were sexist for once again failing to elect the nation’s first female president, and said that Trump’s election amounted to an assault on women’s rights.

Consequently, the meeting with Trump didn’t go well.

But Trudeau isn’t Canada’s only politician, and in recent days we’ve seen some contrasting approaches to this serious matter from our provincial leaders.

First up was Doug Ford, who followed up a phone call with Trudeau earlier this week by saying that Canadians have to prepare for a trade war. “Folks, this is coming, it’s not ‘if,’ it is — it’s coming… and we need to be prepared.”

Ford said that he’s working with Liberal Finance Minister Chrystia Freeland to put together a retaliatory tariff list. Spokesmen for his government floated the idea of banning the LCBO from buying American alcohol, and restricting the export of critical minerals needed for electric vehicle batteries (I’m sure Trump is terrified about that last one).

But Ford’s most dramatic threat was his announcement that Ontario is prepared to shut down energy exports to the U.S., specifically to Michigan, New York, Wisconsin, and Minnesota, if Trump follows through with his plan. “We’re sending a message to the U.S. You come and attack Ontario, you attack the livelihoods of Ontario and Canadians, we’re going to use every tool in our toolbox to defend Ontarians and Canadians across the border,” Ford said.

Now, unfortunately, all of this chest-thumping rings hollow. Ontario does almost $500 billion per year in trade with the U.S., and the province’s supply chains are highly integrated with America’s. The idea of just cutting off the power, as if you could just flip a switch, is actually impossible. It’s a bluff, and Trump has already called him on it. When told about Ford’s threat by a reporter this week, Trump replied “That’s okay if he does that. That’s fine.”

And Ford’s calls for national unity – “We need to stand united as Canadians!” – in context feels like an endorsement of fellow Electric Vehicle fanatic Trudeau. And you do wonder if that issue has something to do with it. After all, the two have worked together to pump billions in taxpayer dollars into the EV industry. Just over the past year Ford and Trudeau have been seen side by side announcing their $5 billion commitment to Honda, or their $28.2 billion in subsidies for new Stellantis and Volkswagen electric vehicle battery plants.

Their assumption was that the U.S. would be a major market for Canadian EVs. Remember that “vehicles are the second largest Canadian export by value, at $51 billion in 2023 of which 93% was exported to the U.S.,”according to the Canadian Vehicle Manufacturers Association, and “Auto is Ontario’s top export at 28.9% of all exports (2023).”

But Trump ran on abolishing the Biden administration’s de facto EV mandate. Now that he’s back in the White House, the market for those EVs that Trudeau and Ford invested in so heavily is going to be much softer. Perhaps they’d like to be able to blame Trump’s tariffs for the coming downturn rather than their own misjudgment.

In any event, Ford’s tactic stands in stark contrast to the response from Alberta, Canada’s true energy superpower. Premier Danielle Smith made it clear that her province “will not support cutting off our Alberta energy exports to the U.S., nor will we support a tariff war with our largest trading partner and closest ally.”

Smith spoke about this topic at length at an event announcing a new $29-million border patrol team charged with combatting drug trafficking, at which said that Trudeau’s criticisms of the president-elect were, “not helpful.” Her deputy premier Mike Ellis was quoted as saying, “The concerns that president-elect Trump has expressed regarding fentanyl are, quite frankly, the same concerns that I and the premier have had.” Smith and Ellis also criticized Ottawa’s progressively lenient approach to drug crimes.

(For what it’s worth, a recent Léger poll found that “Just 29 per cent of [Canadians] believe Trump’s concerns about illegal immigration and drug trafficking from Canada to the U.S. are unwarranted.” Perhaps that’s why some recent polls have found that Trudeau is currently less popular in Canada than Trump at the moment.)

Smith said that Trudeau’s criticisms of the president-elect were, “not helpful.” And on X/Twitter she said, “Now is the time to… reach out to our friends and allies in the U.S. to remind them just how much Americans and Canadians mutually benefit from our trade relationship – and what we can do to grow that partnership further,” adding, “Tariffs just hurt Americans and Canadians on both sides of the border. Let’s make sure they don’t happen.”

This is exactly the right approach. Smith knows there is a lot at stake in this fight, and is not willing to step into the ring in a fight that Canada simply can’t win, and will cause a great deal of hardship for all involved along the way.

While Trudeau indulges in virtue signaling and Ford in sabre rattling, Danielle Smith is engaging in true statesmanship. That’s something that is in short supply in our country these days.

As I’ve written before, Trump is playing chess while Justin Trudeau and Doug Ford are playing checkers. They should take note of Smith’s strategy. Honey will attract more than vinegar, and if the long history of our two countries tell us anything, it’s that diplomacy is more effective than idle threats.

Dan McTeague is President of Canadians for Affordable Energy.

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Business

Canada needs to get serious about securing its border

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From the Macdonald Laurier Institute

By Todd Hataley for Inside Policy

US President-elect Donald Trump has made clear his intention to call out Canada on weak enforcement on migration, money laundering, and the cross-border trafficking of narcotics, especially fentanyl.

Until just very recently, Canada has remained largely silent on these issues. Security agencies, such as the Royal Canadian Mounted Police (RCMP), Ontario Provincial Police (OPP), Sûreté du Québec (SQ) and the Canada Border Services Agency (CBSA), have tried to secure the border via memorandums of understanding, framework agreements, and legislated agreements that allow them to share information and even work together.

However, resources are limited for cross-border law enforcement co-operation. CBSA remains  understaffed and RCMP Integrated Border Enforcement Teams (which work with US security agencies) have limited geographic reach, leaving much of the enforcement between ports of entry left to police of jurisdiction, who already are hard pressed to provide services to the communities they serve.

The Canadian government’s apparent strategy of largely ignoring the problem is becoming more difficult to maintain. With the United States Border Patrol intercepting increasing numbers of illegal migrants crossing into that country from Canada, it’s clear the porous border is a concern. Exacerbating the situation is the recent discovery of illegal narcotic super labs in Canada – where production far outstrips the market – and Canada’s unfortunate, albeit well-deserved reputation as a haven for global money launderers.

Thanks to Trump’s 25 per cent tariff threat, the crisis is now endangering Canada’s relationship with its largest and most-important trading partner. This announcement sent all sectors of government and the private sector into a frenzy, prompting Prime Minister Justin Trudeau to fly to Florida to seek out an early audience with Trump at his Mar-a-lago resort home. Trudeau’s team spun the trip as proof that the federal government is serious about working with the US to address its border security and public safety concerns.

But with political crises piling up, it will be difficult for Trudeau to also manage the political optics of kowtowing to Trump, who is widely unpopular among Canadians. Spending extra money to appease Trump during the ongoing housing, immigration, and health care crises could make the Trudeau’s popularity nosedive even further. Adding insult to injury, Trump is essentially demanding that Canada do America’s work by stopping illicit goods and people from entering the United States: customs and border security officials generally work on the principle of stopping goods from entering their country.

Trudeau faces many practical challenges, including the need to ramp up the number of border and law enforcement agents who have the skill sets and training required to police offences such as drug production, money laundering, and the cross-border smuggling of goods and humans. Purchasing helicopters and drones to conduct surveillance will do little to aid enforcement, since most goods smuggled across the border pass through legitimate border crossings. RCMP Commissioner Mike Duheme even suggested putting RCMP cadets along the border – a challenging proposition since vast swathes of the border are either wilderness or water. Surveillance is one thing, but the act of enforcement takes skilled people with the capacity to investigate, gather evidence, and articulate that evidence into something that can be used by the courts for convictions. These concerns are not being addressed in this current frenzy to spend money on border security.

There is also good evidence that fortifying the border, or what has become known as forward deployment along the border, does nothing to stop the cross-border transit of contraband goods and people. One need only look as far as the United States-Mexico border to see the failure of forward deployment.

As authorities increase border enforcement activities, the costs of smuggling goods and people mounts for criminals. Eventually, it drives out amateurs, leaving only the professional, skilled, and well-equipped criminal groups. This, in turn, often leads to increasing levels of violence along the border, making interdiction and disruption far more difficult for law enforcement agencies.

Canada has several clear options to address Trump’s border concerns. It can increase the staffing of frontline CBSA officers, including border agents, inland enforcement units that actively investigate and remove individuals from Canada, international liaison officers, and customs processing staff. It can also create a plan for CBSA to take over enforcement between ports of entry. Currently, CBSA enforces entry into Canada at the ports of entry and the RCMP are responsible for the areas in between. Having a single agency manage the border builds capacity and expertise, avoiding inter-bureaucracy competition and confusion.

Canada can also work to better integrate law enforcement, intelligence units, and border services at all levels of government and across international boundaries. Cross-border crime operations are often planned and execute far from the border.

Some of this already takes place, as noted above, but it needs to go much deeper and be more supportive at both institutional and individual levels. This process must also include private sector stakeholders: companies such as FedEx, UPS, and Amazon, as well as freight forwarders, trucking companies, and customs brokers, are all involved in cross-border trade. Their participation as partners in reducing cross-border criminal activity is essential.

Finally, the government needs to designate laws specific to cross-border crime and include meaningful penalties as a means of deterrence.

Hyper-focusing on the border while ignoring other aspects of cross-border crime may be good political optics, but it is a bad strategy. What we really need is functional enforcement – including an integrated process extended vertically and horizontally across all sectors of border stakeholders, at and away from the border, supported by strong policy and legislation. This is the path forward to better cross-border crime enforcement.


Dr. Todd Hataley is a professor in the School of Justice and Community Development at Fleming College. A retired member of the Royal Canadian Mounted Police, he worked as an investigator in organized crime, national security, cross-border crime, and extra-territorial torture. He is a contributor to the Macdonald-Laurier Institute.

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