Here’s How Consumers Drive the Market for Ethical Investments
One of the hottest trends is sustainable investing, also known as socially responsible investing. A growing number of Canadians want their personal values reflected in their investing choices; but they also want to make good investment decisions. Is it possible to have both?
These days, the answer is yes. Sustainable investing is being driven by consumer preference, but it also makes good business sense.
One factor is the unprofitability of being responsible for environmental or social misbehaviour. It’s not just the economic cost of cleaning up, for example, an oil spill. It’s also about having a reputation for unsustainable practices. Reports that a company is not practicing gender or racial equality can have a similar economic downside.
Many consumers are demanding higher social responsibility in the companies they include in their investment portfolio. They are watching, and business knows it.
That’s all well and good, but will mixing ethics into your investing be worthwhile? The answer is a satisfying yes, depending on the fund. The International Monetary Fund (IMF)’s staff analysis, as reported in the October 2019 Global Financial Stability Report, indicates the performance of sustainable and conventional funds is similar.
RBC’s 2020 Responsible Investment Survey indicates a steadily growing, yearly trend toward investment companies including environmental, social and governance (ESG) factors in their investment approach and decision making. Globally, 84% of respondents believe ESG-integrated portfolios will perform as well or better than non-ESG-integrated investments.
Survey respondents comprised organizations with more than $10 billion in assets down to individual investment consultants. European companies are the leaders, with 94% reporting they include ESG factors–up 4 per cent from the previous year. But Canada is right behind Europe, with 89% incorporating ESG factors into their processes, up 9 percentage points from 2019.
So, what exactly is an ESG fund? For the time being, the answer depends on the fund manager. Some funds will include energy companies if they’re working to improve their ESG performance. Others will exclude companies involved in fossil fuel, tobacco, guns, and gambling. As a consumer, you can choose funds which also reflect the values of diversity, racial inclusion, and gender equality.
Choose sustainable investing to create a satisfying ethical and financial performance in your portfolio. Ask your Financial Advisor for a list of funds worthy of your consideration.