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Investing in Canada: the Silicon Valley of the North

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The following content is sponsored by the Canadian Consulate in San Francisco.

Foreign Direct Investment in Canadian Tech Sector

Investing in Canada: the Silicon Valley of the North

The fastest-growing tech hubs are no longer limited to the San Francisco Bay Area. Canadian cities have emerged as ideal ecosystems for nurturing technology companies.

In particular, Toronto, Edmonton, Montreal, and Vancouver are well-known hubs for innovation, attracting some of the world’s top tech talent.

Today’s graphic from the Canadian Consulate in San Francisco highlights why Canada’s booming tech industry is attractive to foreign companies, and where the new avenues for growth are located.

Investing in Canada’s Tech Sector

Canada is an attractive market for foreign investors and corporations.

  • Free Trade: Canada is the only country that freely trades with every G7 nation
  • Innovation: The tech startup ecosystem in Canada ranks 3rd in the world
  • Stability: Canada’s social and political climate ranks in the top 20 most stable worldwide

Foreign direct investment (FDI) into Canada is fueling this growth. In just a year, FDI grew by 70%—from $32.2 billion in 2017 to $54.7 billion in 2018. There are three primary types of FDI:

TypeDescriptionExample
HorizontalSame type of business established in a foreign country Cell phone provider in the U.S. opens stores in Canada
VerticalDifferent but related business established or acquired in a foreign countryU.S. manufacturer acquires a Canadian supplier of parts or raw materials required for its products
ConglomerateAn investment made in a business unrelated to the foreign investor’s existing businessJoint venture between a Canadian Artificial Intelligence (AI) company and a U.S. company with no experience in AI

For many years, Canada has maintained an open flow of trade, investment, and talent with other nations. That’s why many well-known foreign companies are flocking to the “Great White North” to attract world-class talent.

Who’s Got Talent: Hiring the Best

Canada is an emerging leader in talent attraction. The influx of FDI and skilled immigrants has sparked the “brain gain” throughout Canada’s tech sector.

The Global Skills Strategy (GSS) is a recent federal program that fast tracks immigration for highly-skilled workers applying directly to Canada or through U.S. companies. In 2018 alone, the GSS received over 10,000 applications─with a 96% success rate for approved work visas.

Shorter processing times for Canadian work visas are enabling more efficient immigration. Canadian visas are now processed within 10-14 days, compared with the typical U.S. timelines of 6-10 months.

Locally, Canadian tech talent has also grown formidable. Notable experts in AI, deep learning, and technology have pursued lucrative research and career opportunities in Canada.

Canadian Tech Pioneers

  • Yoshua Bengio: 2018 Turing Award, University of Montreal
  • Richard Sutton: Google DeepMind, University of Alberta
  • Joelle Pineau: Facebook AI Research (FAIR), McGill University
  • Geoffrey Hinton: Google, 2018 Turing Award, University of Toronto
  • Donna Strickland: 2018 Nobel Laureate, University of Waterloo
  • Doina Precup: Canadian Institute for Advanced Research (CIFAR) Senior Fellow, McGill University
  • Sanja Fidler: NVIDIA Director of AI, University of Toronto
  • Hugo Larochelle: Google Brain, CIFAR Associate Director, University of Montreal

Notable accolades include the Turing Award, which is given annually to selected individuals for their contributions “of lasting and major technical importance” to the computer science industry.

Highly skilled professionals such as those listed above are working closely with both renowned academic organizations and major tech companies to foster innovation in Canadian tech.

Show Me the Money: Setting up Shop in Canada

Companies that choose to invest in Canada’s technology sector also have access to several key financial incentives.

  1. Tax Incentives
    Foreign companies can receive corporate tax breaks for investing in a Canadian office. Any research and development (R&D) work may also be eligible for Scientific Research and Experimental Development (SR&ED) tax credits.
  2. Lower Labor Costs
    Lower costs of living throughout Canada allows foreign companies to pay lower wages to staff without impacting quality of life. The rent-to-tech wage ratio─the ratio of a tech worker’s monthly housing costs to their monthly wages─is significantly lower in Canada compared to major U.S. tech hubs. For example, Montreal’s ratio is 12.6%, compared to San Francisco’s ratio of 26.4%.
  3. Lower Operating Costs
    Setting up a physical office also offers more value per dollar for foreign companies, as most operating costs are significantly lower in Canada.

The Canadian tech industry is consistently boosting job growth, tech innovation, and wealth creation─all important considerations for foreign companies and investors.

Attracting Foreign Companies to Canada

Many view Canada as a land of opportunity─ the country consistently ranks highly on global happiness, thanks to its stable politics, social factors, and strong economy.

With quality talent and lower costs, Canada is fertile ground for U.S. and foreign tech companies seeking to grow their businesses and global reach.

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An Introduction to MSCI ESG Indexes

With an extensive suite of ESG indexes on offer, MSCI aims to support investors as they build a more personalized and resilient portfolio.

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An Introduction to MSCI ESG Indexes

There are various portfolio objectives within the realm of sustainable investing.

For example, some investors may want to build a portfolio that reflects their personal values. Others may see environmental, social, and governance (ESG) criteria as a tool for improving long-term returns, or as a way to create positive impact. A combination of all three of these motivations is also possible.

To support investors as they embark on their sustainable journey, our sponsor, MSCI, offers over 1,500 purpose-built ESG indexes. In this infographic, we’ll take a holistic view at what these indexes are designed to achieve.

An Extensive Suite of ESG & Climate Indexes

Below, we’ll summarize the four overarching objectives that MSCI’s ESG & climate indexes are designed to support.

Objective 1: Integrate a broad set of ESG issues

Investors with this objective believe that incorporating ESG criteria can improve their long-term risk-adjusted returns.

The MSCI ESG Leaders indexes are designed to support these investors by targeting companies that have the highest ESG-rated performance from each sector of the parent index.

For those who do not wish to deviate from the parent index, the MSCI ESG Universal indexes may be better suited. This family of indexes will adjust weights according to ESG performance to maintain the broadest possible universe.

Objective 2: Generate social or environmental benefits

A common challenge that impact investors face is measuring their non-financial results.

Consider an asset owner who wishes to support gender diversity through their portfolios. In order to gauge their success, they would need to regularly filter the entire investment universe for updates regarding corporate diversity and related initiatives.

In this scenario, linking their portfolios to an MSCI Women’s Leadership Index would negate much of this groundwork. Relative to a parent index, these indexes aim to include companies which lead their respective countries in terms of female representation.

Objective 3: Exclude controversial activities

Many institutional investors have mandates that require them to avoid certain sectors or industries. For example, approximately $14.6 trillion in institutional capital is in the process of divesting from fossil fuels.

To support these efforts, MSCI offers indexes that either:

  • Exclude individual sectors such as fossil fuels, tobacco, or weapons;
  • Exclude companies from a combination of these sectors; or
  • Exclude companies that are not compatible with certain religious values.

Objective 4: Identify climate risks and opportunities

Climate change poses a number of wide-reaching risks and opportunities for investors, making it difficult to tailor a portfolio accordingly.

With MSCI’s climate indexes, asset owners gain the tools they need to build a more resilient portfolio. The MSCI Climate Change indexes, for example, reduce exposure to stranded assets, increase exposure to solution providers, and target a minimum 30% reduction in emissions.

An Index for Every Objective

Regardless of your motivation for pursuing sustainable investment, the need for an appropriate benchmark is something that everyone shares.

With an extensive suite of ESG indexes designed specifically for sustainability and climate change, MSCI aims to support asset owners as they build a more unique and personalized portfolio.

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Tracked: The U.S. Utilities ESG Report Card

This graphic acts as an ESG report card that tracks the ESG metrics reported by different utilities in the U.S.—what gets left out?

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NPUC Utilities ESG Report Card Share

Tracked: The U.S. Utilities ESG Report Card

As emissions reductions and sustainable practices become more important for electrical utilities, environmental, social, and governance (ESG) reporting is coming under increased scrutiny.

Once seen as optional by most companies, ESG reports and sustainability plans have become commonplace in the power industry. In addition to reporting what’s needed by regulatory state laws, many utilities utilize reporting frameworks like the Edison Electric Institute’s (EEI) ESG Initiative or the Global Reporting Initiative (GRI) Standards.

But inconsistent regulations, mixed definitions, and perceived importance levels have led some utilities to report significantly more environmental metrics than others.

How do U.S. utilities’ ESG reports stack up? This infographic from the National Public Utilities Council tracks the ESG metrics reported by 50 different U.S. based investor-owned utilities (IOUs).

What’s Consistent Across ESG Reports

To complete the assessment of U.S. utilities, ESG reports, sustainability plans, and company websites were examined. A metric was considered tracked if it had concrete numbers provided, so vague wording or non-detailed projections weren’t included.

Of the 50 IOU parent companies analyzed, 46 have headquarters in the U.S. while four are foreign-owned, but all are regulated by the states in which they operate.

For a few of the most agreed-upon and regulated measures, U.S. utilities tracked them almost across the board. These included direct scope 1 emissions from generated electricity, the utility’s current fuel mix, and water and waste treatment.

Another commonly reported metric was scope 2 emissions, which include electricity emissions purchased by the utility companies for company consumption. However, a majority of the reporting utilities labeled all purchased electricity emissions as scope 2, even though purchased electricity for downstream consumers are traditionally considered scope 3 or value-chain emissions:

  • Scope 1: Direct (owned) emissions.
  • Scope 2: Indirect electricity emissions from internal electricity consumption. Includes purchased power for internal company usage (heat, electrical).
  • Scope 3: Indirect value-chain emissions, including purchased goods/services (including electricity for non-internal use), business travel, and waste.

ESG Inconsistencies, Confusion, and Unimportance

Even putting aside mixed definitions and labeling, there were many inconsistencies and question marks arising from utility ESG reports.

For example, some utilities reported scope 3 emissions as business travel only, without including other value chain emissions. Others included future energy mixes that weren’t separated by fuel and instead grouped into “renewable” and “non-renewable.”

The biggest discrepancies, however, were between what each utility is required to report, as well as what they choose to. That means that metrics like internal energy consumption didn’t need to be reported by the vast majority.

Likewise, some companies didn’t need to report waste generation or emissions because of “minimal hazardous waste generation” that fell under a certain threshold. Other metrics like internal vehicle electrification were only checked if the company decided to make a detailed commitment and unveil its plans.

As pressure for the electricity sector to decarbonize continues to increase at the federal level, however, many of these inconsistencies are roadblocks to clear and direct measurements and reduction strategies.

National Public Utilities Council is the go-to resource for all things decarbonization in the utilities industry. Learn more.

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