Canadians have been investing in socially responsible investment funds since 1986. Initially, SRI stood for Socially Responsible Investing and primarily meant excluding companies that did not align with their personal values. Investors used ‘negative screening’ to avoid companies with operations, practices or assets that did not align with their social objectives; avoiding tobacco companies is a good example.

Over the years sustainable investing has grown in popularity and the term SRI has broadened to include additional strategies.

In general, Sustainable, Responsible and Impact Investing includes considering the environmental, social and governance (ESG) factors when making investment decisions. This means analyzing a company’s environmental record, social-responsible 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 specific themes, such as clean energy, the environment, or gender and/or racial specific mandates. While sustainable, Responsible and Impact investing strategies all incorporate ESG factors in one way or another, there are a variety of possible approaches when choosing companies to invest in. These include:

Negative/exclusionary screening. Like in the early days, the exclusion of companies based on specific environmental, social, or governing practices.

Positive/best-in-class screening. Investing is certain sectors, companies or projects based on positive ESG performance in comparison to their industry peers.

ESG Integration. Including the company’s stance on environmental, social and governance issues in the financial analysis when choosing what businesses to invest in.

Thematic investing. Investing in themes or specific industries; for example, clean energy, green technology, or sustainable agriculture.

It is important to note that each of these strategies are not mutually exclusive; goals and mandates can overlap. Thematic investing for example can incorporate ESG integration, while mainly focusing on a one particular social goal.

Now more than ever society is taking a stance against climate change, corrupt policies, and human rights violations. In 2019, approximately US$940B was invested in this space, and to meet the Paris Agreement, at least US$60 trillion will need to be invested into renewable energy and carbon-reducing technologies by 2050.

However, currently there is limited regulation concerning investment funds that define themselves as being ‘green’. Be aware not all ESG investments are the same; a study of 118 global environmental-themed funds and ETFs found that 22 of them held assets in fossil fuels. Many feel fossil fuels do not belong in a green fund.

Therefore, if this is a sector you want to invest in, give me a call and I will help you choose an investment that best represents your personal values and objectives.

Have a great week,

Tracey

Source: Mackenzie Financial

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