Daniel Oong tries to be a conscious consumer, including buying local when possible and asking where goods are sourced to ensure he’s comfortable with the environmental impacts and how workers making those products are treated.
He tries to take the same approach with investing, by seeking out companies with a good environmental, social and governance (ESG) track record, such as having a gender-diverse board, giving back to communities and helping to protect the planet.
“It’s one thing to impact change through signing petitions, writing to your elected representatives or even protesting, but a lot of power and decision-making now is based out of corporations,” says Mr. Oong, 33, of Vancouver. “There are ways to invest your money that encourage better business models … by investing in companies that are doing good.”
Millennial investors are 65 per cent more likely than baby boomers to consider ESG factors when making investment decisions, according to an Ipsos Reid survey done for the Responsible Investment Association (RIA) and commissioned by OceanRock Investments Inc. It’s an important demographic given that millennials now make up about half of the North American workforce and are estimated to inherit more than $30-trillion in the coming decades, according to Accenture.
Responsible investing has grown by 49 per cent in the past couple of years to more than $1.5-trillion in assets under management in Canada in 2016, according to the latest data from the RIA. That’s 38 per cent of Canada’s investment industry, up from 31 per cent two years prior.
“As this generation pays down its student debt, inherits money and builds wealth, responsible investing will continue to become more mainstream,” said Dustyn Lanz, senior director of communications and member affairs at the RIA.
Mr. Lanz said he’s getting a growing number of calls from the investment community, including advisers looking for more information on responsible investing.
“They say they’re learning more about responsible investing because their clients’ kids are asking about it,” says Mr. Lanz.
Scotiabank's iTrade online broker service recently added sustainable investing tools, including research and performance ratings for stocks based on ESG factors, to help investors pick companies that align with their principles.
Wealthsimple Inc. chief executive officer Michael Katchen says his company added socially responsible investing (SRI) exchange-traded funds to its lineup in March, 2016, after getting requests from its investors – about 85 per cent of whom are under age 45.
“The number one requested feature was – do you offer an SRI investment solution?” Mr. Katchen said.
Today, about a quarter of Wealthsimple investors are in the company’s SRI funds.
“It’s a huge nod to the times,” Mr. Katchen said. “Young professionals not only want to make money on their money but have their investments aligned with their values.”
Still, some investors are conflicted about what’s considered a responsible investment. For some, it might be strictly clean-energy companies, while for others it can include resource companies – as long as they’re proactively reducing their environmental footprint.
Mr. Oong looked at buying the iShares Jantzi Social Index, which boasts a “higher standard” of ESG performance, but was put off that it includes energy companies such as Suncor Energy Inc.
“For someone whose line in the sand is that they don’t want fossil fuels, that wouldn’t work,” Mr. Oong says. “Some corporations might define themselves along those lines [of being socially responsible], but investors may not.”
After a lot of research, Mr. Oong bought shares in renewable power company Boralex Inc., because it “fits both my desired level of a good ESG record and is a good investing choice in general.” He has other investments that don’t fall under the SRI umbrella, but is trying to find more that are a fit.
“SRI is something I’ve been very interested in for a few years, but I find it a bit hard to implement because of the intense amount of research required,” Mr. Oong says. “ESG is not well defined or standardized, so it’s hard to compare.”
The RIA’s Mr. Lanz says different funds use different responsible investment strategies. One might focus on renewable energy and clean technology, while another might use a screening approach to eliminate “ESG laggards” and invest in “ESG leaders” across industries such as oil and gas, mining, banking and retail.
“There is no ‘one size fits all’ when it comes to responsible investing,” Mr. Lanz says.
What about returns?
One reason investors don’t seek out responsible investments is the “performance myth,” says Mr. Lanz, “which suggests that there is a performance penalty for being a responsible investor.”
He cites Canadian and international studies showing that, on average, responsible investments perform “just as well if not better than traditional investments over the long term.”
For example, a 2015 Morgan Stanley report says responsible investing “has usually met, and often exceeded, the performance of comparable traditional investments.”
It says sustainable equity mutual funds had “equal or higher median returns and equal or lower volatility” than traditional funds for about two-thirds of the periods examined.
“There is a positive relationship between corporate investment in sustainability and stock price and operational performance, based on a review of existing studies,” the report says.
Mr. Lanz also says incorporating ESG factors into investment decisions can improve risk management.
He cites examples such as Volkswagen, which saw its shares plummet in the months after its emissions-cheating scandal was revealed, and the plunge in BP shares after the Deepwater Horizon disaster in 2010.
“It really makes sense when you think about it,” Mr. Lanz says. “If a company is well-governed and managing its exposure to environmental and social issues, it’s more likely to be a better performing company overall.”Report Typo/Error