Product innovation in ESG

Dominique Barker: Welcome to the Sustainability Agenda, a podcast series focussing on the evolving complexities of the sustainability landscape with a view on addressing current issues in a concise format to help you navigate and take action. I’m your host, Dominique Barker. Please join me as we explore today’s most pressing matters with special guests that will give you some new perspective and help you make sense of what really matters.

Meric Koksal: You’re absolutely correct. So not only are investors actually investing in companies that are focussed on ESG, the proceeds will ultimately be a part of our green bond framework. So it’s a very much a full circle story.

Dominique Barker: On today’s episode, I’m speaking with the head of Barwell Solutions Group, Bill Bamber, along with Meric Koksal, and we’re going to be talking about the Human Capital Index and something called market linked GIC’s. We’re really pleased to have Bill and Meric to the show today on the sustainability agenda. I recently heard a terrific anecdote from Kathryn Wortsman. She’s the founder of the Canadian Impact Fund Amplify Capital. We’re speaking about talent and why it’s important to understand where the best talent wants to be. For example, if we think back in the nineteen nineties, talent was flocking to finance and consulting, which of course led to success in those industries. And in the 2010s it was all about Silicon Valley, which of course led to the success of those fang companies. And today, when we talk to people in university or recent grads, talent wants to work with impact. So understanding the importance of human capital to a sector success is very important. So, Bill, let’s start with you. Maybe you could just describe what the Human Capital Index is. How do you define it?

Bill Bamber: Of course. And thank you for having us Dominique. The index is based upon the groundbreaking research of Duke University professor Dan Ariely and his team of Irrational Capital. Basically, their research is a deep dive into corporate culture, using both public and private data. While the research itself is complex, the premise is quite simple. Namely, companies that engage well with their employees produce better financial results for shareholders. The indexes universe is drawn from the top five hundred market cap companies in the US. We rank based upon what we call the human capital factor sector, neutralise the index and rescreen and rebalance annually. On average, there are about one hundred and fifty shares in the index and the index went live last October and we have the historical results back to 2014 based upon irrational capitalist data set.

Dominique Barker: So when you do that back testing’s, are you telling us that that factor seems to be working? What’s been the experience when you back tested?

Bill Bamber: It has proven to outperform the benchmark, the SMP Five hundred. Basically, it’s broken down into a number of what we call strong signals and weak signals. And those companies that score very well on strong signals with each factor combine to outperform the SMP Five hundred over the long run.

Dominique Barker: That does seem intuitive because as we described in the opening, talent is a really important part of a company’s capital positioning. So that’s interesting. So marriage, the Wealth Solutions Group, has been very busy creating products that have some connection to ESG. Could you please describe this new product that you’ve devised, the market Linked GICs and maybe just talk about the advantages of the product?

Meric Koksal: Absolutely. We are very excited to share that we’ll be launching our very first market linked with ESG focus like a traditional GIC. The CIBC index growth GIC is a fixed term investment with full principal protection. We’ll be going into the market with a three and a five year term for our clients. What is important, though, is it’s very unique on two fronts. One, it’s upside growth potential is linked to a dynamic index that provides higher relative exposure to ESG focussed Canadian companies. In this index, we’re including the top 60 largest companies in Canada and companies with the higher ESG scores get a relatively higher weighting within their sectors. This process is renewed on a quarterly basis. This is where the dynamic approach comes in. So as companies increase their focus on ESG and improve their scores, their relative weighting within their sectors will go up within the index. The second unique part of the market linked GIC is the proceeds will be used to fund loans that contribute to CIBC broader asset targets. We are very excited about this since as of today, CIBC is the only one of the six big banks to offer a market linked GIC to our retail investors, where the proceeds will be used to further sustainable finance objectives.

Dominique Barker: That is really cool. When I talk to investors, they want to invest in ESG. And when you ask them, well, what is ESG? really what they want to do is be making an impact. And so it sounds like what you’re telling me. So clients who buy this market see the proceeds go towards sustainable investments or loans that fit into CBC’s green framework. Is that correct?

Meric Koksal: You’re absolutely correct. So not only are investors actually investing in companies that are focussed on ESG, the proceeds will ultimately be a part of our green bond framework. So it’s a very much a full circle story for our clients and their access to ESG.

Dominique Barker: I’d be really curious to follow how that product does. That sounds really interesting. Bill and Marriage were asking all of our guests this next question, what are you doing personally to reduce your own carbon footprint or reduce inequalities in society? Bill, why don’t we start with you.

Bill Bamber: Sure. Pre pandemic, my commute had a very low carbon footprint and a real one because I ran to work when the gyms were open and you could get cleaned up before coming into the office. And on the social front, we support a number of very important endeavours here locally. The Children’s Aid Foundation and I worked in Africa for a number of years and so that’s very close to my heart. And we support a soccer academy in Uganda and Malawi.

Dominique Barker: Very interesting. I love this question. You get to learn about your co-workers. Meric, what about you?

Meric Koksal: I wish I could say I want to work every day, though. I have partaken in daily activities a couple of times. But I would say one of the things that I’m very proud of that we do as a family is we’re very focussed on preserving the environment. And the way we do that is we participate in Ontario’s Managed Forests programme. So this allows us to preserve large amounts of land from development. And the goal here is to restore them to their original diversity for hopefully the future generations to enjoy it as much as we’re enjoying them. We also try to utilise solar energy as much as possible to reduce our footprint, hopefully with the goal of getting to a zero emission lifestyle.

Dominique Barker: Fantastic Bill, Meric, thank you so much and best of luck with those two new products. They sound very innovative. And thank you for your leadership and innovation in creating those products and helping CIBC move the sustainability agenda forward. Thank you very much.

Meric Koksal: Thank you for having us.

Bill Bamber: Thank you.

Dominique Barker: Please join us next time as we tackle some of sustainability’s biggest questions, providing different perspectives to help you move forward. I’m your host, Dominique Barker, and this is the sustainability agenda.

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