RESPONSIBLE INVESTING IS ALSO SMART INVESTING

Today, more and more investors have greater expectations from the companies they invest in. It’s about more than companies turning a profit – it’s about how they do it. Are they protecting or harming the environment? Are they respecting or disregarding human rights? Investors want to know that companies are good corporate citizens.

Investment management firms have reacted to investors’ expectations, and the responsible investing movement is flourishing. There are several different types of responsible investing. Socially responsible investing, for example, typically involves including or excluding investments according to ethical guidelines. Impact investing helps companies and organizations develop specific social or environmental projects that benefit society. But the most common approach in Canada is environmental, social and governance (ESG) investing.

ESG INTEGRATION

ESG investing typically integrates environmental, social and governance factors into the traditional process of research, analysis and investment selection. The environmental screen looks for any practices or acts of negligence that harm the environment, including high carbon emissions, toxic chemical exposure and lack of habitat protection. The social category is all about respecting employees and suppliers, including issues such as labour rights, safety in the workplace and gender pay equity. Governance involves the responsibility of a corporation’s leadership, including the independence of its board members, implementation of anti-corruption measures and managing of consumer relations.

Say, for example, that an environmental concern emerges when it’s discovered that a manufacturing company has repeatedly paid fines for improperly storing and disposing of hazardous waste. Perhaps a social issue requires investigation if news circulates that a clothing company has outsourced production work overseas involving meagre pay and unsatisfactory working conditions. Or say a governance matter arises because the board of an energy firm may not have taken proper measures to prevent against cyber attacks. Any issues like these must be taken into consideration as potential investment risks.

ACTIVE OWNERSHIP

In addition to integrating ESG factors into investment selection, investment management firms monitor the ESG practices of companies they invest in and take action if improvements are called for. That’s essential to ESG investing – holding companies accountable for the way they respect the environment, society and their shareholders.

Taking action often begins with seeking disclosure of specific ESG matters. When issues are evident, firms should communicate with management, using their influence as investors to affect change. They can also take advantage of shareholder voting rights when corporate decisions involve ESG measures.

BENEFITS OF ESG INVESTING

ESG investing gives investors the satisfaction of knowing they’re helping to promote respect and care for the environment and society. It’s also important to know that you don’t have to compromise on performance. Numerous studies in Canada, the U.S. and internationally show that, overall, traditional investments and ESG investments have similar returns. In fact, according to the Responsible Investment Association, most Canadian responsible investing funds outperformed their average asset class returns over the 10-year period ending June 30, 2021.1

Also, ESG investing has the potential to offer downside protection and reduce portfolio risk. That’s largely due to the extra layer of screening to identify environmental, social and governance risks in the investment selection process. Companies that experience ESG controversies can see their share prices suffer.

If you would like more information about responsible investing in general or how it relates to your portfolio, please get in touch.

1 Responsible Investment Association, Quarterly Responsible Investment Funds Report, July 29, 2021 

ESG INVESTING

ENVIRONMENTAL

Protecting our water, air, habitats and climate. Practising energy efficiency and sustainability.

SOCIAL

Supporting the rights of employees, customers and workers throughout the supply chain.

GOVERNANCE

Ensuring that leadership acts in accordance with the best interests of shareholders.

This material was prepared for and published on behalf of your financial advisor and is intended only for clients resident in the jurisdiction(s) where their representative is registered. This material is provided solely for informational and educational purposes and is not to be construed as an offer or solicitation for the sale or purchase of any securities or as providing individual investment, tax or legal advice. Consult your professional advisor(s) prior to acting on the basis of this material. Insurance products are available through advisors registered with applicable insurance regulators. Individual equities are available only through representatives of Assante Capital Management Ltd. In considering any particular investment, please remember that past performance is no guarantee of future performance. Although this material has been compiled from sources believed to be reliable, we cannot guarantee its accuracy or completeness. All opinions expressed and data provided herein are subject to change without notice. Neither CI Assante Wealth Management or its dealer subsidiaries Assante Capital Management Ltd. and Assante Financial Management Ltd., nor their affiliates or their respective officers, directors, employees or advisors are responsible in any way for any damages or losses of any kind whatsoever in respect of the use of this material. CI Assante Wealth Management is a registered business name of Assante Wealth Management (Canada) Ltd. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Assante Financial Management Ltd. is a member of the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation (excluding Quebec). © 2022 CI Assante Wealth Management. All rights reserved.