Responsible Investing: you’ve got questions, we’ve got answers.
Responsible Investing (RI) is becoming increasingly popular with Educators’ investors who are interested in supporting environmental, social, and corporate governance (ESG) causes.
However, many things about RI are still unclear for a majority of investors. Here are the top questions education members have been asking about RI, and the answers:
1. I hear all sorts of different names used for RI. Is there a difference?
“Responsible Investment” is a term which has come to encompass many types of investing. Other variations include sustainable investing, green investing, and ESG investing. However, underlying all of these is a common objective: providing economic value, while displaying commitment to broader values of fairness, justice, and environmental sustainability. RI may deploy one or more of the following strategies:
- ESG Integration – the consideration of ESG factors (environmental, social and governance) in the investment selection process.
- Active Ownership – the use of the rights as a shareholder to influence corporate behavior.
- Exclusions – screening out and excluding certain sectors.
- Impact and thematic – allows investors to address ESG issues by investing in specific solutions important to them, such as renewable energy, waste and water management, sustainable forestry and agriculture, health products and inclusive finance.
2. How popular is responsible investing?
Responsible investing is one of the fastest-growing kinds of investment strategies today. About $3 trillion in assets are under some kind of responsible investing strategy in Canada and represents about 47% of the Canadian investment industry. According to Responsible Investment Association’s 2022 trend report, 94% of respondents are using environmental, social, and governance (ESG) integration as RI strategy.
3. What entitles an investment manager to call itself “responsible”?
Institutional Investors must commit to adopting and using the six UN Principles for Responsible Investment (PRI), which provide a worldwide standard for responsible investing as it relates to ESG factors.
4. Do responsible investments have lower returns?
Opinions on whether RI produces lower returns in your portfolio vary greatly. It has been argued that the very nature of RI—which dictates that the investor limit the choice of investments by adding criteria other than return—increases the chance of lower returns. On the other hand, many analysts suggest that companies that invest based on ESG are reducing risk factors, and hence increasing their own strength.
When determining whether RI is right for you, it’s wise to remember two things: first, you can limit the amount of RI in your portfolio; and second, by the very definition of RI, financial return isn’t the only objective… the other is the satisfaction of supporting a company’s values.
5. What types of responsible investments exist currently?
Responsible investments are found in all major asset classes: equities, fixed income (corporate bonds, green bonds, etc.), money market, and alternatives such as impact investments. Investment vehicles include mutual funds, private equity funds, ETFs, pooled funds, real estate funds, and hedge funds.
6. How do I invest in responsible investments?
Choosing responsible investments for your portfolio is very similar to how you would choose your other investments. The first step is to meet with a Financial Advisor to discuss your goals, and how long you want to invest. Part of that discussion will be your investment time horizon and other preferences you have as an investor—including your preference for responsible investments.
For more information about RI, and the investments that are right for you, speak with an Educators Financial Advisor at 1.800.263.9541 or send us a message.
Sources:
https://www.theglobeandmail.com/globe-investor/confused-by-ethical-investing-heres-a-primer/article34332548/
http://blog.fundx.com/blog/2017/04/19/5-frequently-asked-questions-sustainable-investing/
https://www.nasdaq.com/article/socially-responsible-investing-risk-and-return-cm899194
https://www.riacanada.ca/research/2020-canadian-ri-trends-report/
