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Socially responsible investment: What is it?

Posted on Monday November 09, 2020


Socially responsible investment: What is it?

Do you have money saved up you want to invest, but your conscience is bothering you? Would you like to invest it while remaining true to your values? If so, responsible investment is for you! Sustainable, green, ethical—we explain what these terms mean and what they can mean to you.

What is responsible investing?

There’s a handy acronym to remember to have a good understanding of responsible investing: ESG. It stands for environmental, social and corporate governance criteria used in selecting and managing investments. It means striving to make ethical and sustainable choices.

Too good to be true? Not at all—and the range of options grows every year! If you’re sensitive to human rights or climate change, your investments could help build a more humane and environmentally friendly economy.

What does the ESG assessment involve?

ESG criteria are based on the United Nations’ Principles for Responsible Investment. The Responsible Investment Association in Canada is also a good reference.

ESG assessment takes into account how companies manage risk in relation to these three dimensions (environmental, social and governance). The analysis may look at a company’s impact on the environment (energy efficiency and waste recovery) or how it treats its employees and ensures the diversity of its board of directors.

How are organizations selected to be part of ethical funds?

First, certain types of organizations may be excluded from ethical funds altogether if they cause serious harm to humans or their environment. Alcohol, military armament and the tobacco industry are common examples (not to follow!).

Next, a selection strategy is developed to compare companies to their peers, i.e., other organizations in their industry, according to criteria that vary from one field to another. For example, in the food and beverage sector wastewater management is analyzed.

Have evaluation criteria been tightened recently?

The more experience investment managers gain with this type of investing, the more they are able to refine their criteria and offer a variety of financial products. In 2020 several criteria have come to predominate:

  • Employee health and safety, including social distancing measures in the context of the COVID-19 pandemic
  • Supply chain management in terms of business resilience (e.g., not running out of raw materials)
  • Cybersecurity and data privacy
  • Diversity (gender, ethnicity, professional experience, etc.)

Criteria such as these are used to create funds that reflect society’s evolving values.

Does responsible investing sacrifice returns?

Can you invest in organizations that provide affordable housing to people in need without seeing your returns suffer? You certainly can!

The benefits may well be both social and economic. Many studies have been done on the issue. In 2015, a meta-analysis of more than 2,000 studies demonstrated that responsible investing is profitable.

How can I ensure that my investment is truly sustainable and ethical?

Funds that call themselves green may have grey areas. It’s all in the details! For example, sorting plants for recycling are good for the environment, but they can pollute. Electric cars raise similar questions because of the minerals in the batteries and the traffic congestion they cause.

Instead of throwing the baby out with the bathwater, talk to a financial advisor. Why not make a suggestion yourself about an area you’d like to invest in, to identify which funds are right for you based on your principles?

How to learn more on your own

Doing your own research is the latest thing! Many companies post their annual reports and a wide range of documents on the web. You can easily find out who’s on their boards of directors and what they plan to do to fight climate change.

Is responsible investing best suited to low-risk investors or high-risk investors?

Whether you’re a cautious type or a whiz at risk and stress management, there’s something for everyone. Most financial products are available in an environmentally friendly and responsible version. For example, a prudent investor will go for green bonds, while a bolder investor will turn to exchange-traded funds.

How to invest responsibly with UNI

By adopting a clear and sustainable vision, UNI has taken a green turn in line with the values of its client members. All advisors and planners on our Wealth Management team are trained and accredited by the Responsible Investment Association. We make sure our responsible investments not only drive change but also deliver smart returns. We don’t compromise on that!

We also offer sustainable investment options for all investor types, whether you want to invest your money in a mutual fund or a guaranteed investment in the form of an RRSP or TFSA, by yourself or with the help of an advisor. Contact one of our advisors to learn more.

Mutual funds and financial planning services are offered through Credential Asset Management Inc. Mutual funds, other securities and securities-related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered trademark of Aviso Wealth Inc.

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