Investing with a purpose
You’re passionate about social and environmental issues and you want your investment portfolio to match your values.
Socially responsible investing (SRI) is an investment strategy where fund managers follow guiding principles that are about more than just the financial performance of funds. Instead, they decide which funds to select based on environmental, social and corporate governance (ESG) factors.
There are different approaches to socially responsible investing, all tailored towards different types of investors and fund selection criteria. Ultimately their goal is allowing you to invest for returns while helping to reshape the future.
The ESG approach
Environmental, social and governance investing (ESG) has one of the widest approaches to responsible investing. It isn’t tied to a specific moral or ethical purpose; it’s a process that allows fund managers to take a more complete look at all of the ESG factors that could impact the performance of an investment. Fund managers who follow ESG principles consider the following factors in their investment decision making process to judge risk and return.
- Climate change
- Greenhouse gas (GHG) emissions
- Resource depletion, including water
- Waste and pollution
- Working conditions, including slavery and child labour
- Local communities, including indigenous communities
- Health and safety
- Employee relations and diversity
- Executive pay
- Bribery and corruption
- Political lobbying and donations
- Board diversity and structure
- Tax strategy
Today, many fund managers use ESG values in their fund selections. These individuals, including several of our own fund managers, have shown their commitment to this practice through signing the United Nations-supported Principles for Responsible Investment (PRI)Opens a new website in a new window. These 6 principlesOpens a new website in a new window were designed by an international group of institutional investors and approved by the United Nations Secretary General.
The PRI provides a list of actions fund managers can follow to make ESG principles a part of their investment practice. The PRI protects the “long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole”.
Advantages and disadvantages of SRI and ESG
No investment strategy is perfect. Each has pros and cons. Along with your advisor, you need to decide is SRI is right for you.
Advantages of SRI
- You can invest in what you believe in
- Rewards ethical companies
- Provides a sense you’re doing something positive
- May help lessen investment risk if ESG principles become important to a company’s survival and success
- Can help bring positive change to the world
Disadvantages of SRI
- You may miss good or better investment opportunities that aren’t SRI
- Some companies claim to be social responsible, but really aren’t (called greenwashing)
- Some companies may focus so much on ESG that it hurts their performance
SRI investing strategies
There are several ways to choose your SRI investments:
- Negative screening – Avoiding investing companies that aren’t seen as being socially beneficial, e.g., weapons, tobacco, fossil fuels.
- Positive screening – Investing in companies whose products have a positive social impact, e.g., decarbonization, health, financial inclusivity.
- Impact investing – Investing to promote a measurable positive social or environmental impact and generate a financial return.
- Divestment – Removing investments from your portfolio for companies that conflict with your interests or beliefs.
- Activist investing – Investing in funds that invest in a company for the purpose of changing how that company is run.