Responsible Investing has never been easier
More investors are looking for ways to grow their money, while also making a positive impact on the world around them.
Responsible Investing (RI) means putting money into companies with strong environmental, social and governance (ESG) commitments, which includes everything from reducing energy and waste to supporting workplace diversity and human rights.
RI interest is growing
In Canada, more than $1.5 trillion was managed using one or more RI strategies in 2015, according to newly released data from the Responsible Investment Association (RIA). That's a 50-per-cent increase from 20131. Globally, the number is about US$60 trillion2.
Interest in RI investing is also broadening. A recent Ipsos Reid survey, produced by the RIA and commissioned by OceanRock Investments Inc., found that half of all Canadian investors believe it's important to consider ESG factors within investment decisions, while 60 per cent feel RI will become even more important in the next five years. (The number jumps to 82 per cent among Millennials).3
RI is widely accepted as a smart approach to investing. A growing body of research shows companies with strong ESG policies and practices also deliver competitive returns.4 Research commissioned in 2015 by OceanRock revealed that RI mutual funds not only provide better returns, but also reduced volatility, lower risk, and more downside protection compared to non-RI funds.5
More investments choices
Growing interest in RI has led to more investment options. There is a range of products on the market today, from individual stocks with a solid ESG performance to RI-focussed mutual funds and ETFs, as well as so-called "green bonds" created to fund projects with positive environmental benefits.
For investors interested in mutual funds, the RIA's website (www.riacanada.ca) provides a list of companies that support RI, including OceanRock's Meritas SRI Funds, as well as financial institutions and advisers who are knowledgeable about RI options.
ETF investors can buy the iShares Jantzi Social Index ETF (ticker "XEN" on the Toronto Stock Exchange), which is a group of Canadian stocks including some of Canada's biggest banks, railways and energy companies considered to have a strong ESG performance. Those interested in investing outside of Canada will find a wider range of RI-focussed ETFs such as the iShares MSCI ACWI Low Carbon Target ETF (ticker "CRBN" on the New York Stock Exchange), or the PowerShares Cleantech Portfolio (ticker "PZD" on the New York Stock Exchange).
For investors looking for individual stocks considered to be good RI investments, there are several lists that rank companies based on ESG performance. Examples include the Global 100 Most Sustainable Corporations in the World index, put out each year by Corporate Knights.6 Investors might also consider constituents on the Dow Jones Sustainability Index, which tracks sustainability-driven companies based on ESG factors.7
Investors can also do their own homework on a particular company's ESG practices by looking through its financial documents. These can often be found on the investor section of a company's website, or on Sedar.com. Many companies also publish a separate corporate sustainability report that outlines their ESG performance and targets.
RI comes down to personal choice
For investors, the appropriate RI stocks or funds to buy often comes down to personal perspective and outlook. For some investors, that might mean excluding oil and gas companies, for example, because of their higher environmental footprint. Others may choose instead to invest in an energy company that is considered "best in class" in the industry based on its ESG performance.
Regardless of the approach, RI overall continues to gain momentum among investors who want their money to work for them, and others.
The ETFs named are provided for illustration purposes only and are not intended as investment advice or a solicitation to buy or sell.
- "2016 Canadian Responsible Investment Trends Report," Responsible Investment Association, https://riacanada.ca/trendsreport
- UN Principles for Responsible Investment https://www.unpri.org/about
- "Millennials, Women, and the Future of Responsible Investing," Responsible Investment Association (April, 2106) https://riacanada.ca/millennials-women/
- "From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance," Smith School of Enterprise and the Environment, Oxford University and Arabesque Partners, March 2015. http://www.arabesque.com/index.php?tt_down=51e2de00a30f88872897824d3e211b11
- "Canadian Responsible Investment Mutual Funds: Risk /Return Characteristics," Carleton Centre for Community Innovation, May 1, 2015. https://www.qtrade.ca/_pdfs/oceanrock/3CI_ORII_RI_Fund_Risk_Return_Analysis.pdf
- "Global 100 Most Sustainable Corporations in the World Ranking," Corporate Knights http://www.corporateknights.com/magazines/2017-global-100-issue/2017-global-100-results-14846083/
- "Industry Group Leaders," Dow Jones Sustainability Index http://www.robecosam.com/en/sustainability-insights/about-sustainability/corporate-sustainability-assessment/industry-group-leaders.jsp