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Incorporating responsible investing and ESG into your portfolio

Responsible investing (RI) – also known as “socially responsible investing” or “ESG investing” – is  a rapidly growing segment of the global investment market. In Canada alone, assets being managed using one or more RI strategies now account for over 60 per cent of Canadian assets under management.1

RI takes into consideration more than just a company’s financial health. It incorporates a company’s environmental, social and governance (ESG) performance in the assessment of a company’s value. And while RI is a great way to align your investments to your values, according to a study from Deutsche Bank Climate Change Advisors, it’s also been shown to help reduce portfolio risk and volatility and provide potential opportunities for higher long-term returns.2

Grow your money and contribute to positive social and environmental outcomes. Sounds great, right? But as a do-it-yourself investor, what’s the best way to align your investment portfolio with your values? How can you evaluate the ESG commitments of the companies in your portfolio?

There are many ways to incorporate ESG strategies into your portfolio, and not any “one size fits all” approach. Here are a few ways to get started. 

Evaluating stocks with an RI lens (ESG ratings)

One of the easiest ways to start investing responsibly is to screen any new stocks, bonds or mutual funds you’re interested in purchasing with an RI lens. When buying a stock, for example, you’d do your normal due diligence and likely look at the company’s financial performance, balance sheet, history and management team. You might read recent news on the company and its industry, or perhaps review its financial performance against its peers.

To invest responsibly, you need to add ESG performance to your research and choose investments in companies with higher or improving ESG ratings (also known as ESG scores). We’ve listed a few places you can begin your research:

  • Many companies publish information related to their ESG targets and performance (ESG Reports, Sustainability Reports, Corporate Social Responsibility Report or similar).
  • There are a few organizations that conduct ESG risk analysis and sustainability assessments, and “score” companies on their ESG performance. Two that make some of the data publicly available are MSCI and Sustainalytics.
  • Various organizations publish lists of companies that score well on sustainability, and there are indices that only include stocks considered to be good RI investments. A few of these are:
    • Corporate Knights publishes an annual Global 100 ranking of the most sustainable companies.
    • The CDP (formerly known as the Carbon Disclosure Project) scores the sustainability of companies, cities and governments on an annual basis, and publishes its A-List for the public.
    • MCSI provides a search tool that lets you explore their ESG ratings and the ESG key issues of over 2,800 companies.
    • Corporate Sustainability Index, from S&P Global, is an annual evaluation of companies’ sustainability practices.
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Shareholder engagement

But what about the holdings you already have in your portfolio? If a review of the companies you’re already invested in turns up ESG concerns, or if there is simply poor visibility into a company’s ESG commitments, what can you do? As an individual holder of a company’s shares, you have the ability to engage with that company, to encourage more transparency and try to influence it to do better, to improve its ESG performance.

As a shareholder, you can use your “proxy votes” to engage with a company on its practices. If you own a stock in your portfolio, you can vote your proxy yourself. You can review a company’s management proxy circulars and vote on shareholder resolutions. These are proposals submitted by shareholders on a variety of issues that are voted on at a company’s annual meeting. Or, if you own a mutual fund or exchange-traded fund (ETF), you transfer those voting duties to your mutual or investment fund manager to vote on your behalf. Voting topics could include board member elections, pay packages or company mergers.

Of course, with enough time and dedication, you can file your own shareholder resolutions, which are put to the vote by all shareholders. But the time and research required to submit a shareholder resolution is significant, and the process often proves to be too daunting for many investors.

Letting someone else do the RI or ESG evaluation

Sometimes, the simplest way to ensure you’re investing responsibly is through a mutual fund or ETF that is constructed and managed using an RI lens. That way, it’s the fund manager who invests, monitors the ESG factors of all the underlying holdings, and does any proxy voting for you.

Consider the advantage of joining forces with thousands of other investors to engage companies at scale. That’s what happens when you invest in a professionally managed responsible investment fund that has shareholder engagement as part of its mandate. You delegate your shareholder power to professional managers overseeing a fund that may have a total value of hundreds of millions of dollars. That gives the manager enough clout to engage with multiple companies on a range of ESG issues.

RI fund managers will vote proxies on behalf of their unit- or shareholders according to policies aimed at mitigating ESG risks, and will proactively file shareholder resolutions. Filing shareholder resolutions is often done in cooperation with several asset managers, increasing the likelihood of attracting enough votes to influence executives and boards to respond. The best RI fund managers report regularly on their activities, so you know exactly what impact they’re making on your behalf.

A wealth of RI investment options

Growing investor interest in RI has led to more investment options. There is a wide range of products on the market today, from individual stocks with solid ESG performance to RI-focused mutual funds and ETFs, as well as “green bonds” created to fund projects with positive environmental benefits.

For investors interested in mutual funds or ETFs, Canada’s Responsible Investment Association provides a list of companies that support RI and pay attention to ESG factors, including Qtrade’s sister company NEI Investments, as well as financial institutions and advisers who are knowledgeable about RI options. Qtrade also offers more than 100 commission-free ETFs for purchase, several of which have an RI focus.

For more detailed information on responsible investing, check out
Responsible investing 101

1 Responsible Investment Association website, https://www.riacanada.ca/.

2 Responsible Investment Association website, https://www.riacanada.ca/responsible-investment/#benefits-of-ri.

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Aviso Wealth Inc. ('Aviso') is a wholly owned subsidiary of Aviso Wealth LP, which in turn is owned 50% by Desjardins Financial Holding Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and The CUMIS Group Limited. The following entities are subsidiaries of Aviso: Aviso Financial Inc. (including divisions Aviso Wealth, Qtrade Direct Investing, Qtrade Guided Portfolios, Aviso Correspondent Partners), and Northwest & Ethical Investments L.P.

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes, and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters. Information, figures, and charts are summarized for illustrative purposes only and are subject to change without notice. All investments are subject to risk, including the possible loss of principal.