What is responsible investing?
Responsible investing (RI) involves investing in brands committed to sustainability. This means those focused on environmental, social and governance considerations like carbon emissions, human rights, good working conditions, employee diversity, and more. In other words, it’s a type of investing that allows you to grow your portfolio while also making a difference.
Environmental, social, and governance factors
Environmental impact, social responsibility, and governance practices. What does this really mean? Here’s an overview:
What kind of impact does a company have on the environment? Here are just a few elements that determine whether a company is environmentally responsible:
- Energy use in company facilities and supply chain.
- Types of chemicals and materials used in manufacturing.
- Waste reduction and disposal practices.
- Contribution to greenhouse gas emissions and carbon footprint.
How does a company practice social responsibility toward its own members and the broader community? Here are just a few elements that determine whether a company is socially responsible:
- Racial diversity in executives and overall staff.
- Inclusive hiring practices and development programs, including equality for women, LGBTQ2S+ individuals, and indigenous people.
- Commitment to good working conditions and healthcare.
- Community outreach programs and advocacy.
How does a company govern itself and drive positive change? Here are just a few elements that determine whether a company is governing responsibly:
Equitable pay practices, such as limiting excessive executive bonuses and linking compensation to strategic metrics of long-term value.
Responsible tax policies and disclosure.
Effective management of critical issues like anti-corruption and cybersecurity.
Commitment to an ethical business culture.
Responsible investing: Myth vs. Fact
There are some common misconceptions about responsible investing, so let’s get the facts straight.
Myth 1: Responsible investment portfolios have lower returns
The facts: Actually, responsible investing can also lead to better long-term financial performance. For example, RI equity mutual funds in Canada outperformed their respective benchmarks 63% of the time (over one, three, five and 10 year time periods), according to a Carleton University study.
Why do RI portfolios often see stronger investment growth? Think about it – the companies these portfolios invest in are committed to a sustainable future, which in turn makes them sustainable businesses.
Myth 2: Responsible investing is high-risk
The facts: Responsible investing actually improves risk management because it reduces exposure to risks you might not see on a company’s financial statements. In fact, when experts across Canada were asked about the top reasons to choose responsible investing, the two most prominent responses were to minimize risk and to improve returns over time, according to the 2020 Canadian RI Trends Report.
This means that our advisors can help you build an RI portfolio that suits your risk profile, no matter what it is.
Myth 3: Responsible investing is just a fad
The facts: Responsible investing is growing fast and shows no signs of slowing down. What seemed niche 10 years ago is actually becoming a preferred option, as a growing number of people start paying attention to what their money is invested in.
Recently, 97% of Canadian experts reported that they expected to see moderate to high growth of responsible investing over the next two years (2020 Canadian RI Trends Report). When respondents were asked what they thought was driving this growth, the most common answers included investor demand, climate change, and the impact of ESG factors on investment returns.
Think about what this means: as investor demand increases, so does the incentive for companies to improve their social, environmental, and governance practices. The result is more businesses committed to a sustainable future. That doesn’t sound like a fad to us.
Our partnership with NEI Investments
We provide access to RI portfolios through our partnership with NEI Investments. This gives our Members access to Canada's leading provider of Responsible Investment solutions.
NEI has been a leader in responsible investing for 30 years. Their goal is to make a positive difference on all levels - for their investors, their partners, and all of society. NEI is committed to helping Canadians make investments aligned with their personal values, and they've proven that it’s possible to help change the world and also get a return on your investment. Their combination of strong financial performance and rigorous practices have great potential to outperform “traditional” options over the long-term.