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Key takeaways:

  • Climate change is a pressing issue that may impact issuers and the economies, markets, and society in which they operate.
  • Our investment teams integrate material ESG factors into their investment decisions for applicable types of investments.*
  • We convey our views through thoughtful proxy voting and engagement with issuers for applicable types of investments. We also engage regulatory bodies on material ESG issues and collaborate with other like-minded investors, where applicable.**

Amidst a year of headline risks, climate change continues to garner a significant amount of attention. An unprecedented heat wave across the UK and Europe sparked a string of wildfires – placing added strain on a region that’s navigating an energy crisis. Similarly, China experienced its worst heat wave in six decades, forcing its Sichuan province to temporarily shut down the factories of some of the world’s biggest electronics companies to lessen the burden of a power shortage. In California, the worst drought in 1,200 years has threatened the region’s agricultural sector. Meanwhile, floods have ravaged Pakistan, leaving a devastating path of damage and crippling its economy.

Undoubtedly, the climate headlines of today are concerning. But, what is perhaps more alarming are potential future implications if the narrative continues to deteriorate. To combat that risk, the Paris Agreement was adopted in 2015. The international treaty, which has been signed by more than 190 nations, seeks to avoid the worst impacts of climate change by keeping global warming to well below 2°C, and preferably to no more than 1.5°C above pre-industrial levels. According to some of the most reputable scientists, meeting this goal requires greenhouse gas (GHG) emissions to decline by approximately 45% by 2030 (relative to 2010 levels), and reach net-zero emissions by 2050 or sooner1.

Annual CO2 emissions, by region

Annual production-based emissions of carbon dioxide (CO2), measured in tonnes (1860 - 2020). Source: Global Carbon Project, Our World in Data.

What does net-zero mean?

The term ‘net-zero emissions’ is about achieving balance between the GHG emissions we produce and those we take out of the atmosphere. In order for the world to achieve this level of emissions reduction, decarbonization will need to take place across all sectors, industries, and geographies. The United Nations (U.N.) has described the transition to a net-zero world as “one of the greatest challenges humankind has faced.”

The image below shows the main sectors where de-carbonization will need to take place.

sources of global ghg emissions footnote 1

Evidently, the net-zero transition has emerge as a key theme impacting financial markets as climate-related risks and opportunities impact companies in different ways. It’s also a topic that’s increasingly on the mind of Canadian investors. A 2021 survey by the Responsible Investment Association found that 85% of investors surveyed want Canadian corporations to set net-zero emissions goals. Almost eight in 10 stated they would like a portion of their portfolio to be invested in companies that are providing solutions to reduce carbon emissions3.

Integrating the transition to net-zero into investment decisions

RBC Global Asset Management (RBC GAM) supports the global goal of achieving net-zero emissions by 2050 or sooner. We also recognize and support the need to achieve a just and orderly transition to net-zero that promotes widely shared economic prosperity. To this end, RBC GAM measures and monitors how issuers are addressing climate change by considering:

  • What are the company’s current GHG emissions? How does the company’s emissions profile compare to its peers on an intensity basis (e.g. revenue or standard output)?
  • Has the company set comprehensive climate targets to address material financial risks due to climate change? Do they have a robust transition and action plan to meet those targets? Are they making progress in meeting their targets?
  • Does the company have effective governance structures in place to manage climate-related risks and opportunities?
  • Does the company offer transparent disclosure on the climate risks and opportunities they face? How are these integrated into strategic and financial decision-making?

Where climate change may present a financially material risk, we expect all issuers in which we are invested to establish credible targets and action plans aligned with achieving net-zero emissions by 2050 or sooner. We also expect them to demonstrate progress in meeting their commitments. We convey our views on climate change through thoughtful proxy voting, engagement with issuers and regulatory bodies, and collaboration with other like-minded investors.

An example of ESG-related engagement

As an active participant of Climate Action 100+, RBC GAM engaged multiple times with an energy infrastructure company over the past year. Early discussions focused on requesting additional disclosure, such as interim targets for the company’s long-term commitment to be net-zero by 2050 and carbon intensity targets by 2035, amongst other climate-related strategy disclosures. By mid-year, a letter was submitted and a meeting scheduled with the CEO of the company. At the engagement, discussion included a request for enhanced disclosure regarding the company’s strategy to transition to a low-carbon economy and their carbon intensity reduction targets. By year end, progress had been made in that the company developed interim carbon intensity reduction targets for their 2035 commitment. The latest engagement discussion focused on requesting that the company increase disclosure on its climate-related public policies. The discussion with the company on its climate-related strategies and disclosures remains an ongoing effort.

Our approach to climate change

The impacts of climate change are systemic and unprecedented. They’re also already apparent. While climate change has the potential to affect the global economy, the economic impacts on specific markets, regions, and investments are complex, varied, and uncertain. Governments, companies, consumers, and investors each have a role to play in addressing climate change, and achieving net-zero emissions by 2050 or sooner. As asset managers and investors, and stewards of our clients’ assets, we believe considering climate-related risks and opportunities in our investment approach can enhance our long-term risk-adjusted returns.

Read more now about how we address climate risks and opportunities. Or to learn how to incorporate responsible investment into your portfolio, read Understanding responsible investment. Ready to get started? Speak to your financial advisor.

1. Intergovernmental Panel on Climate Change (2019)
2. Global emissions, Centre for Climate and Energy Solutions, accessed on November 26 2020
3. 2021 RIA Investor Opinion Survey
* Certain investment strategies or asset classes do not integrate ESG factors, including but not limited to money market, passive and certain third-party sub-advised strategies.
** In certain instances involving quantitative investment, passive and certain third-party sub-advised strategies, there is no direct engagement with issuers by RBC GAM.


Last reviewed: January 1, 2023
This document is provided by RBC Global Asset Management (RBC GAM) for informational purposes only and may not be reproduced, distributed or published without the written consent of RBC GAM or its affiliated entities listed herein. This document does not constitute an offer or a solicitation to buy or to sell any security, product or service in any jurisdiction; nor is it intended to provide investment, financial, legal, accounting, tax, or other advice and such information should not be relied or acted upon for providing such advice. This document is not available for distribution to investors in jurisdictions where such distribution would be prohibited.

RBC GAM is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management Inc., RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited, RBC Global Asset Management (Asia) Limited, and BlueBay Asset Management LLP, which are separate, but affiliated subsidiaries of RBC.

In Canada, this document is provided by RBC Global Asset Management Inc. (including PH&N Institutional) which is regulated by each provincial and territorial securities commission with which it is registered. In the United States, this document is provided by RBC Global Asset Management (U.S.) Inc., a federally registered investment adviser. In Europe this document is provided by RBC Global Asset Management (UK) Limited, which is authorised and regulated by the UK Financial Conduct Authority. In Asia, this document is provided by RBC Global Asset Management (Asia) Limited, which is registered with the Securities and Futures Commission (SFC) in Hong Kong.

Additional information about RBC GAM may be found at www.rbcgam.com.

This document has not been reviewed by, and is not registered with any securities or other regulatory authority, and may, where appropriate and permissible, be distributed by the above-listed entities in their respective jurisdictions.

Any investment and economic outlook information contained in this document has been compiled by RBC GAM from various sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates assume no responsibility for any errors or omissions.

Opinions contained herein reflect the judgment and thought leadership of RBC GAM and are subject to change at any time. Such opinions are for informational purposes only and are not intended to be investment or financial advice and should not be relied or acted upon for providing such advice. RBC GAM does not undertake any obligation or responsibility to update such opinions.

RBC GAM reserves the right at any time and without notice to change, amend or cease publication of this information.

Past performance is not indicative of future results. With all investments there is a risk of loss of all or a portion of the amount invested. Where return estimates are shown, these are provided for illustrative purposes only and should not be construed as a prediction of returns; actual returns may be higher or lower than those shown and may vary substantially, especially over shorter time periods. It is not possible to invest directly in an index.

Some of the statements contained in this document may be considered forward-looking statements which provide current expectations or forecasts of future results or events. Forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Do not place undue reliance on these statements because actual results or events may differ materially from those described in such forward-looking statements as a result of various factors. Before making any investment decisions, we encourage you to consider all relevant factors carefully.

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© RBC Global Asset Management Inc., 2021
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