Responsible Investing (RI) is quickly growing to become a standard. With accelerating commitments by policymakers and business leaders to address environmental, social and governance (ESG) issues, RI has gained a greater focus in the investing world. Increasingly, investors are prioritizing ESG factors into their investment objectives. Have you integrated ESG factors into your own investing? Here are four considerations:
- There are a wealth of investment options. Until recently, it was difficult for investors to incorporate ESG factors into their investing. Negative screening was the main approach to RI, which involved avoiding investments that didn’t meet ESG standards. With greater attention to ESG issues, this has led to other approaches to investing in this space. Last year, the world’s largest fund manager announced sweeping changes to position itself as a leader in RI, committing to assessing ESG factors in its investments “with the same rigor that it analyzes traditional measures such as credit and liquidity risk.”1 Today, there are over $30 trillion in assets under management (AUM) with a sustainable strategy globally.2 In Canada, RI assets account for almost two thirds of total AUM, or $3.2 trillion.3 Investors can now create with ease portfolios that incorporate their own personal ESG values.
- RI can support and enhance performance. For years, there was a long-held view that investors who prioritized ESG factors sacrificed greater returns. However, newer studies suggest that the reverse often holds true — companies integrating these practices into their operations have the potential for improved investment results over the longer term.4 Why? One reason is because focusing on ESG factors can provide a more comprehensive view of potential risks and opportunities. For instance, of the S&P 500 companies that filed for bankruptcy between 2005 and 2015, 88 percent exhibited weak ESG ratings for years leading up to the filing.5
- Investors can make a positive impact. The choices that investors make can send a message to business owners. With new commitments by global policymakers and business leaders, there has been increased transparency which has led to improved reporting and accountability by businesses and business leaders. By voting with their wallets, investors can hold companies accountable in generating a positive social or environmental impact alongside a financial return.
- Responsible investing is the future. There has been a distinct pivot by governments, policymakers and business leaders in actively supporting and financing environmental and social movements. This past spring, the U.S. committed to cutting greenhouse gas emissions by around 50 percent by 2030.6 U.S. President Biden has pledged almost $2 trillion to an infrastructure bill that focuses on shifting to greener energy, and proposed $1.8 trillion to support social improvements for American families.7 Similarly, Canada has pledged a significant cut in greenhouse gas emissions. Even China, seen as a global offender, has stated its commitment to “protect the environment and deliver social equity and justice in the course of green transition.”8 Environmental and social change appears to be the new focus on many agendas, providing a platform to drive responsible investing into the future.
How We Can Assist
For many investors, investing is more than just meeting a consistent return. It involves incorporating personal values to make a positive impact. With continuing support by policymakers and leaders globally, ESG remains a focus for the future. The beneficiaries will not only include our planet, but also those who invest wisely along the way. We can help you to structure your portfolio to integrate ESG factors that are important to you. Please call for a discussion.
- blackrock.com/institutions/en-gb/blackrock-client-letter; 2. forbes.com/sites/newyorklifeinvestments/2020/09/17/3-tips-to-get-started-with-sustainable-investing/?sh=59a85772627f; 3. riacanada.ca/research/2020-canadian-ri-trends-report/; 4. tiaa.org/public/pdf/ri_delivering_competitive_performance.pdf; forbes.com/just-companies/#2ea3f1c82bf0; Gunnar Friede, Busch & Bassen, “ESG and financial performance”, Journal of Sustainable Finance & Investment, 2015; 5. markets.businessinsider.com/news/stocks/10-reasons-to-care-about-esg-investing-bank-of-america-2019-9-1028557439; 6. cnbc.com/2021/04/22/biden-pledges-to-slash-greenhouse-gas-emissions-in-half-by-2030.html; 7. cnn.com/2021/03/31/politics/infrastructure-proposal-biden-explainer/index.html; 8. Chinese President Xi Jinping, “For Man and Nature: Building a Community of Life Together,” April 22, 2021. U.S. President Biden’s Leaders Summit on Climate.
