Canadians started investing in socially responsible mutual funds in 1986,1 to align their investing with their personal values. Some investors also wanted to manage risk and try to influence issues or behaviours, either at specific companies or in society at large. Today, Canadians have invested billions of dollars in sustainable funds, with Assets under Management in socially responsible investing mandates growing from $7.5B to $8.7B from March 2016 to March 2017.2 Growth in the SRI space has been driven by increasing investor interest across the board but two groups appear to be leading the charge: women and millennials. Millennial investors, in particular, are demanding that their money also contribute to positive environmental and social impact.

Initially, SRI stood for Socially Responsible Investing and primarily involved excluding companies that did not meet specific criteria. Investors used “negative screening” to avoid companies with operations, practices or assets that did not align with their social objectives. However, as the popularity of SRI investing increased, the term broadened to encompass more strategies.

SRI = Sustainable, Responsible and Impact Investing

Today, Mackenzie Investments identifi es SRI as “Sustainable, Responsible and Impact Investing”. In general, sustainable responsible and impact investing includes considering environmental, social and governance (ESG) factors when making investment decisions. So when portfolio managers analyze a company’s financials to find value, they also examine the company’s environmental record, sociallyresponsible practices and corporate governance. For example, is the company trying to reduce its carbon footprint? Does its supply chain create products with integrity? Does the company promote gender and ethnic diversity in its executive leadership? The analysis can also focus on specifi ed themes – such as clean energy – and then the investment approach may select companies accordingly, such as based on the quality of their clean energy policies.

While Sustainable, Responsible and Impact Investing strategies all incorporate ESG factors in one fashion or another, there is in fact a wide range of ways to do so. Investment companies that offer responsible investment products consider a number of possible approaches, including:

  • Negative/exclusionary screening: the exclusion from a fund or portfolio of certain sectors, companies or practices based on specific ESG criteria;
  • Positive/best-in-class screening: investment in sectors, companies or projects selected for positive ESG performance relative to industry peers;
  • ESG integration: the systematic and explicit inclusion by investment managers of environmental, social and governance factors into financial analysis;
  • Thematic investing: investment in themes or assets specifically related to sustainability (for example clean energy, green technology or sustainable agriculture).

It is important to note that each of these strategies are not necessarily mutually exclusive. Goals and methodologies of some of these can overlap. Thematic investing for instance, can incorporate ESG integration, but can mainly focus on a particular social goal.