You might expect someone who is 60 to be more responsible than a 30-year-old. But when it comes to responsible investing, the opposite seems to be true.
Responsible investing (RI), sometimes called socially responsible investing (SRI), has become so popular that it’s safe to say it’s more than a trend. Younger investors are leading the way – away from buying shares in arms manufacturers and tobacco companies and toward stocks and funds that measure their progress on issues such as diversity and environmental values.
But with the number of successful RI products on the market, you don’t have to be young to be responsible.
“The SRI category has taken off in recent years, with Canadians currently holding more than $11.3-billion in ethical investments," says Barry McInerney, president and chief executive officer of Mackenzie Investments.
“We’re seeing increasing interest in and adoption of SRI strategies across all demographics, and most notably among millennials."
Research prepared for Mackenzie Investments late last year by the polling firm Environics found that 31 per cent of millennial investors either usually or always consider environmental, social or governance (ESG) factors in their investing. That’s more than double the percentage of baby boomers.
Responsible investors are also looking more and more toward “impact” investing, a more assertive form of RI. The Responsible Investment Association, which represents RI companies and funds in Canada, defines impact investing as “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.”
In other words, responsible investment is more aspirational; impact investments are more activist. While impact investors might push for change, RI seeks simply to do the right thing when it comes to issues like gender balance, diversity and sustainability – it’s a wider category that might include, say, banks or even oil companies that are working on climate change programs while they also pump and frack.
Both categories report success. Mr. McInerney points to his firm’s Mackenzie Global Leadership Impact Fund, which invests in companies that promote gender diversity and women’s leadership. It posted a 4.8-per-cent return, compared with a 2-per-cent loss in Morningstar’s global equity benchmark, in the past year.
A 2018 survey by the RIA, prepared with Rally Assets, a Toronto-based investment firm that specializes in impact investing, found that impact-focused investors “overwhelmingly reported that performance has met or exceeded their expectations.”
Nine out of 10 survey respondents said they expect moderate to high growth over the next two years, even as some analysts predict a pullback in the general markets within the same time.
“Why is impact investment growing? Because it’s working,” says Andrea Nemtin, partner at Rally Assets. “Investors who are aligning their assets with their values report that they are meeting or exceeding their financial targets while creating measurable impact.”
That doesn’t quite explain why RI is more popular now among millennial and Generation Z investors than with the Woodstock generation. It may simply be because the criteria for determining what qualifies as RI are relatively new, and evolving.
Perhaps older investors have been holding their portfolios for longer than younger ones who have just started looking at choices.
There are at least four components, or pillars, to responsible investing now, and the criteria are getting more precise all the time, says Lindsay Patrick, managing director and head of the sustainable finance group at RBC Capital Markets in Toronto.
“The first one, responsible investing, is not even the highest component now,” Ms. Patrick says.
Impact investing is another criterion that’s used more and more, and investors are also looking at key technologies such as clean energy, as well as looking more closely at companies that support gender diversity in the workplace.
Responsible investment managers also typically follow six principles for responsible investing developed by more than 50 global financial institution CEOs with the United Nations and launched in 2006.
According to RBC’s Global Asset Management survey last October, 84 per cent of institutional investors incorporate ESG factors into their screening process.
Advisors should be able to tell investors whether they’re aged 30 or 60 about the ESG measurements in their portfolios, while still focusing on the basics – when you’re 60, the investing timelines are shorter and the risk can be, well, riskier than when you’re younger.
“The bottom line with responsible investing and age brackets is that the advice would be the same as non-RI investments,” says Paul Shelestowsky, senior wealth advisor at Meridian Credit Union in Niagara-on-the-Lake, Ont.
“As you get older, all things being equal, an investor should probably look to decrease risk with less stocks, more bonds. The concept for handling age and risk is the same for RI investing and non-RI investing. Decreasing risk can be done easily. If the investor is with an investment firm that offers portfolio funds, it can be as simple as moving from something like a ‘balanced portfolio’ to a ‘balanced income portfolio’ or ‘conservative portfolio,’ and the investments in the portfolio can be responsible investments."
Mr. McInerney agrees that RI investing can be as straightforward as non-RI at any age, if you follow the principles that apply to your age.
As with any other investments in your portfolio, it’s important to regularly revisit your SRI holdings to ensure they align with your life-stage and that the underlying assets match your evolving risk profile, he adds.
People in their 30s with a long investment horizon may favour equity funds that provide the opportunity for stronger returns. However, someone in their 60s and approaching retirement will tend to be more conservative and look to include SRIs that contain a greater fixed income weighting as they attempt to preserve and protect their accumulated wealth, he explains.
“Luckily, the popularity of SRIs means that more strategies are coming out every year – providing both 30- and 60-year-olds with more options to align their investing with their values. Canadian investors of all ages can invest in socially responsible investments that align with their beliefs and passions,” Mr. McInerney says.