Sustainable Investing Investments for a positive impact

More people are viewing their decision-making based on creating a positive impact on the environment and on society, including their investment choices. With sustainable investments, which is becoming more mainstream in the financial planning world, they can accomplish this through utilizing environmental, social and governance (ESG) criteria into their decisions.

Broader opportunities for outcomes

For people who choose to focus on sustainable or responsible investing, this also allows them to align their investment choices with their personal values. Sustainable investing can integrate some aspects of traditional investments which focuses on risk/return and philanthropic endeavours which don’t provide a return or income consideration.

A range of approaches

Implementing sustainable investing into your portfolio can take one or more of these approaches:

• Exclusionary Screening
  • This is also known as responsible or socially responsible investing or negative screening
  • Individual companies or entire industries are excluded from these portfolios if activities are in conflict with an investor’s values, such as fossil-fuels, gambling or alcohol, gender equity and more
  • This type of investing limits the available opportunities which could have an impact on the ability to diversity

• Integration
  • Combines ESG criteria with traditional financial considerations
  • Gaining momentum as portfolio managers consider ESG themes in their decision-making process
  • Sometimes implemented as a best-in-class approach by identifying and investing in companies that are the best ESG performers within a sector or industry group
  • A study conducted by the CFA Institute cites integration is the most commonly used method¹

Impact Investing²

Aims to have a social or environmental impact alongside financial return, with a focus on intentionality and measurement of impact

Ranges from grant support to private equity; liquidity risk and return target can vary dramatically

Most common products are funds invested in private equity and venture capital

Accredited investors and funds are the leaders in impact investment by asset level

Other Dimensions

Thematic investing – focuses on a specific ESG theme, and structures a portfolio around companies or industries that support that theme

Shareholder engagement (activism) – actively engages with a company, directly working with management or exercising shareholder rights to effect change

The paths to pursuing effective global stewardship and possible growth are coming together in the investor mindset. Sustainable investing, when incorporated into a well-defined, long-term investment plan, can be a powerful tool in addressing global challenges while achieving personal financial goals.
Investors may consider sustainable investing for a host of reasons:

Risk Mitigation: Companies that ignore their social and environmental impacts may face regulatory and governance risks.

More conscious approach to investing: Investors may aim for a positive impact or avoid ties to questionable activities.

Long-term performance: Companies with a negative reputation or poor business practices may not be sustainable.

Align investing with personal or religious views: Investors may not feel comfortable investing in companies whose business practices they view as morally objectionable.

Fiduciary duty: Professional asset managers have a responsibility to invest within certain standards that represent their clients’ interests, which would likely make investments in companies with unsustainable practices less appropriate.

 

 

¹ CFA Institute, “ESG Issues in Investing: Investors Debunk the Myths.” 2015
² Global Impact Investing Network, “What You Need to Know About Impact Investing,” https://thegiin.org/impact-investing/need-to-know/#s2

There is no assurance that any investment strategy will be successful. Investing involves risk and investors may incur a profit or a loss.

Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Sustainable/Socially Responsible Investing (SRI) considers qualitative environmental, social and corporate governance, also known as ESG criteria, which may be subjective in nature. There are additional risks associated with Sustainable/Socially Responsible Investing (SRI), including limited diversification and the potential for increased volatility. There is no guarantee that SRI products or strategies will produce returns similar to traditional investments. Because SRI criteria exclude certain securities/products for non-financial reasons, investors may forego some market opportunities available to those who do not use these criteria. Investors should consult their investment professional prior to making an investment decision.