Responsible Investing On The Rise
Protect your investments Responsible investing is the way to secure your assets and speak with your money.
Mediaplanet: Can you define responsible investing (RI), what it means to invest responsibly, and whether it exists in different degrees?
Dustyn Lanz: Responsible investing means choosing investments that incorporate environmental, social, and corporate governance (ESG) factors. There are a number of ways to invest responsibly. The classic strategy is to exclude companies or industries based on ethical concerns. Another more active approach is to use shareholder influence to improve a company’s ESG performance. As shareholders, RI investors actively engage with companies to support positive outcomes such as improved corporate diversity and fairer pay. There are many other RI strategies, including sustainability investing, which may focus on themes like clean technology and renewables. You’ll find more on our website (riacanada.ca/ri-basics) under the RI strategies tab.
MP: Why do you think RI is among the fastest growing segments?
DL: Individual investors increasingly want to align their portfolios with their values. The 2008 financial crisis has contributed to a growing aversion to risk while megatrends such as climate change have led investors to ask themselves, “How are my savings affecting people and the planet?” This is part of a broader growing interest in sustainability and socially responsible brands.
Institutional investors are moving into RI largely because of the growing business case. A recent survey found that improving risk management, enhancing long-term returns, and adhering to fiduciary obligations are the top three drivers of responsible investing among institutional investors.
MP: Responsible investing is referred to by many different terms: ie, sustainable, ESG, and socially responsible investing. What is the difference between
DL: Responsible investing is an umbrella term that refers to all investments that incorporate ESG criteria in the broadest sense.Terms like socially responsible investing and ethical investing were popularized in the 80s and 90s alongside a campaign to divest from companies involved with the South African apartheid regime and a growing interest in screening out “bad” companies like manufacturers of tobacco and nuclear weapons. In recent years, strategies like integrating ESG factors into financial analysis, positive screening, shareholder engagement, sustainability-themed investing, and impact investing have moved front and centre.
MP: Does responsible investing make up a large portion of the investment market?
DL: The RIA’s 2016 Canadian RI Trends Report shows that responsible investing is growing rapidly in Canada, having grown by 49 percent over the last two years for which there are data. Responsible investing now accounts for $1.5 trillion in assets under management in Canada. That’s 38 percent of the Canadian investment industry.
MP: Can responsible investing reduce risk?
DL: Absolutely, incorporating ESG factors into investment decisions can reduce risk. For example, after Volkswagen admitted to falsifying its emissions results, its shares dropped 35 percent in less than a week. Choosing RI funds can reduce exposure to these types
MP: Where can an investor go to find responsible investments?
DL: Investors can speak with their advisor or financial institution. The Responsible Investment Association website (riacanada.ca) has a wealth of resources on RI, including a list of RI funds and a national directory of responsible investment advisors.