5 Ways to Spot a True SRI Fund
Finance Tips Not all funds billed as socially responsible are created equal.
More and more investors are recognizing the personal and financial benefits of socially responsible investing (SRI). At the beginning of 2016, the global market for SRI securities reached US$22.89 trillion — a 25 percent increase from 2014.1 With a steadily growing demand for socially responsible investments, the mutual fund industry has responded with a wide array of options.
But not all funds that are classified as socially responsible meet the same standards. At iA Clarington, we believe the highest standard of socially responsible investing is achieved when a fund has the following five characteristics.
INTEGRATED TEAM OF ESG EXPERTS AND SECURITY SELECTION SPECIALISTS
The fund management team should have dedicated environmental, social, and governance (ESG) experts working seamlessly with financial analysts in a fully integrated investment selection process.
ESG experts should ensure that only companies that meet socially responsible criteria are considered, while financial analysts will assess a company’s prospects for targeted returns. Only securities that satisfy both groups of experts qualify for inclusion in the fund.
NEGATIVE AND POSITIVE ESG SCREENS
The fund manager should screen out companies that do not meet ESG standards (negative screening). But it’s equally important to actively seek out companies that pursue a progressive ESG agenda (positive screening).
BANNING BIG OFFENDERS
A fund that’s truly committed to SRI should rule out investments in companies whose primary line of business includes tobacco, nuclear power, military weapons, adult entertainment, and gambling.
The portfolio manager should continuously monitor the fund’s holdings to ensure companies remain true to the ESG standards that qualified them for inclusion in the fund.
When a company appears to deviate from these high standards, the portfolio manager should leverage the fund’s status as a shareholder to call company boards and management to account.
WILLING TO PUT IT IN WRITING
If you’re concerned that some funds may only be paying lip service to SRI, there’s a simple way to root out the pretenders: check the prospectus for an unambiguous statement that identifies socially responsible investing as the fund’s core investment objective. If no such statement is present, the portfolio manager may have a lukewarm commitment to SRI.
1Global Sustainable Investment Alliance, 2016 Global Sustainable Investment Review. The information provided herein does not constitute financial, tax, or legal advice. Always consult with a qualified advisor prior to making any investment decision. Statements by Vancity Investment Management Ltd. represent their professional opinion, do not necessarily reflect the views of iA Clarington, and should not be relied upon for any other purpose. Information presented should not be considered a recommendation to buy or sell a particular security. Unless otherwise stated, the source for information provided is the portfolio manager. Statements that pertain to the future represent the portfolio manager’s current view regarding future events. Actual future events may differ. iA Clarington does not undertake any obligation to update the information provided herein. The information presented herein may not encompass all risks associated with mutual funds. Please read the prospectus for a more detailed discussion on specific risks of investing in mutual funds. Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.