Some people might be happy to invest wherever they might get the highest return on their money. Others want to incorporate their values and ethics into where they put their money.
What it means to be an ethical or green investor
In the 1980s and 1990s, some investors began to move away from “sin stocks” like manufacturers of tobacco and weapons. This trend was initially called ethical investing, socially responsible investing or simply responsible investing. Today, it can also go by many other names: sustainable investing, green investing, community investing, mission-based investing, and impact investing.
In 2017, the Responsible Investment Association reported that 77% of Canadian investors are interested in responsible investing, yet, 73% know very little or nothing about it. And compared to all investors, millennials are more than twice as likely to be interested in investments that help solve social or environmental problems.1 As these investors become more ethically active, they want to know more about the companies in which their money is being invested.
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It’s not just about sin stocks anymore
It’s the opinion of Doug Morrow of Sustainalytics that, “Responsible investing has really shifted from an ethical concern to this idea that companies that perform well on environmental, social and governance (ESG) metrics make better long-term financial bets.”2
Many companies are now understanding that they have a duty to interact with the environment and society and run their businesses in a positive way, and that this helps determine investment risk and return for their investors.3
Companies and industries are also concerned about potential risk to their reputations and how turning a blind eye to issues such as climate change, pollution, working conditions, employee diversity, corruption and aggressive tax strategies can result in declining corporate value.3
By 2015, about $1.5 trillion in assets were managed under some form of a responsible investing strategy in Canada, up 49% from two years before. Responsible investing represents about 38% of the Canadian investment industry, according to the Responsible Investment Association's 2016 trend report.
Five tips for going green
So now that you know why people are choosing to invest responsibly, how do you determine how to invest your money responsibly? The Responsible Investment Association suggests 5 strategies.
1. Choose where you invest based on a company’s environmental, social and governance metrics. Dustyn Lanz of the Responsible Investment Association predicts that “topics such as gender diversity, climate change, executive compensation, cannabis, cybersecurity and other technology-related trends, such as blockchain and artificial intelligence, will receive greater scrutiny this year from asset-managers”.2
2. Invest in companies that engage with shareholders to directly influence how the company behaves regarding ethical investing issues.
3. Screen your investments. Exclude or include certain industries, companies or projects based on your ethical investing criteria.
4. Focuses on specific ethical investing themes such as clean technology, gender diversity, cyber security, energy efficiency, green infrastructure, etc.
5. Target “impact” investments such as affordable housing projects or micro-loans to entrepreneurs in low income countries that help solve social and environmental problems.
How Quadrus supports your ethical investment decision
Great-West Lifeco, the parent company of Quadrus Investment Services Ltd., earned a position on the Climate Disclosure Project’s (CDP) 2016 “Climate A List”, the only Canadian financial firm to be named to the ‘A’ list. This is the highest ranking awarded by the CDP, and indicates a leadership position in the field of greenhouse gas emissions disclosure and management.
That’s great you say. But do I have to sacrifice performance compared to other funds?
Thankfully, no. As an investor, it’s good to know you don’t have to choose ethics over investment growth.
A 2015 Carlton University study confirms that Canadian responsible investment funds provide solid investment returns.4 They can also reduce risk and provide greater downside protection than traditional equity funds. FYI, downside protection is something that helps you limit or reduce investment losses if your funds drop in value.
If responsible investing is important to you, talk with an investment representative about evaluating your current investment mix or how to get started.
1 2017 RIA Investor Opinion Survey, Responsible Investment Association
2 Leah Golob, “A major tipping point for RI?”, Investment Executive, Jan. 15, 2018
3 “What is responsible investment”, Principles for Responsible Investment
4 Dr. Tessa Hibb, “Canadian SRI Mutual Funds Risk / Return Characteristics”, Carleton University, May, 22, 2015