Guide To Socially Responsible Investing


How To Find An Esg Fund

What You Need To Know About Socially Responsible Investing (SRI)

Two funds that both insist theyre investing on ESG principles can wind up with radically different portfolios. But the discrepancies are not a reason to stop trying to invest responsibly. Rather, they are a reason to drill down and find a strategy that fits your own goals. The Globes Ian McGugan offers four starting points for anybody thinking of investing in an ESG fund.

Labels arent everything

In theory, an ESG rating offers a definitive, objective guide to a companys environmental, social and governance prowess. In practice? Opinions can differ. A company that has a dismal history of polluting offences may also have a stellar record on gender representation. There is no obviously correct ESG grade to put on such a mixed bag of achievement. Bottom line: An ESG label by itself says little about a fund.

Fossil fuels divide opinion

Investors who are primarily concerned about climate change may be surprised to discover that many ESG indexes are fine with companies that produce oil and gas or are otherwise involved with fossil fuels. The iShares ESG MSCI Canada Index ETF, for instance, has 16 per cent of its money in the energy sector. It lists Enbridge Inc. and Suncor Energy Inc. among its top 10 holdings.

But those concerned about climate change should still take a close look at Desjardins Funds suite of low-carbon funds. They should also consider CI First Assets MSCI World ESG Impact ETFs, which exclude fossil-fuel companies.

Research individual holdings

Find Funds And Investments

If youre looking for a socially responsible mutual fund, there are plenty of options available to you. Many sites like Forbes offer lists that showcase the best ESG funds of the month and explanations to why each one made the list.

Be sure to check which companies these investment groups choose to pool their money in. Many invest in Microsoft, Apple, Amazon, etc., and you should assure that you support all the companies on each list.

It Involves Investing In A Specific Investment Strategy Or Product

  • Responsible investment does not necessarily require investing in a specific strategy or product. It simply involves including ESG information in investment decision-making and stewardship practices, to ensure that all relevant factors are accounted for when assessing risk and return. Exactly how an investor practices responsible investment varies widely.

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How To Create A Socially Responsible Portfolio

Kizito suggests identifying negative SRI screens to eliminate sectors and activities that you dont want in your portfolio. For example, you might choose to eliminate big polluters in the oil and gas industry, and avoid investing in tobacco, alcohol or weapons manufacturing.

A socially responsible portfolio is not a one-size-fits-all what companies it holds will depend on your personal values and belief system.

What Is Responsible Investment

Socially Responsible Investment: A Practical Guide for Professional ...

Responsible investment refers to the incorporation of environmental, social and governance factors into the selection and management of investments.

RI has boomed in recent years as investors have recognized the opportunity for better risk-adjusted returns, while at the same time, contributing to important social and environmental issues.

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Why Invest In Socially Responsible Investments

The point of making more socially responsible investments is to find a way to make solid financial returns while also making the world a better place. Ideally, investors will choose to grow their money with companies that are creating positive change in the world, which creates value across the board for companies, investors and humanity overall.

In terms of making change, especially if youre passionate about protecting the environment, it can be hard to make a big difference as an individual person. Through socially responsible investing, however, the hope is that your investment along with many others can sway corporations to use their larger platform and resources to make a difference on the peoples behalf.

Openinvest Makes Social Investing Easy

J.P. Morgan owns OpenInvest, which is a sustainable investing platform thats still in the works. It will offer reporting that quantifies a portfolios environmental and social impact. OpenInvest also plans to offer values-based metrics like LGBTQIA+ rights, racial justice, disability inclusion, and more.

The platform will reportedly be optimized for tax efficiency at the individual level .

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What Is Socially Responsible Investing

Socially responsible investing is an investment approach that considers the social impact and moral values of an investment as well as the expected financial return. The impact of the investment is considered before the potential profit. An investor who focuses on the social impact of their investments will likely consider ESG factors as theyre evaluating potential investment opportunities.

For example, these investors typically avoid investments in fossil fuels or in the tobacco and firearms industries because of their negative impact on consumers and society.

According to the US SIF Foundations Report on U.S. Sustainable and Impact Investing Trends 2020, the three letters of ESG have been attracting some big numbers. Total assets in sustainable investments grew from $12.0 trillion at the start of 2018 to $17.1 trillion at the start of 2020. Keep in mind that those figures were at the very beginning of 2020 before the challenges of the pandemic forced many investors to think carefully about where their money is going.

In 2020, the COVID-19 health and economic crises and murder of George Floyd and other Black people in America highlighted the urgent need to confront social and economic inequality and calls for racial justice, Hoque says.

Whats Your Moral Code

ETF Spotlight: Socially responsible investing at the Inside ETFs Conference

Make a list of whats important to you. For example, BlackRock offers products that explicitly exclude firearms manufacturers. Meanwhile, State Street and others offer funds focused on addressing climate concerns. Whatever youre passionate about, look for mutual funds or other securities that are connected to those causes.

Here is a breakdown of some of the causes your investments can tackle.

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Socially Responsible Investing Or Sri Definition

Socially responsible investing is an investing strategy that aims to generate both social change and financial returns for an investor. Socially responsible investments can include companies making a positive sustainable or social impact, such as a solar energy company, and exclude those making a negative impact.

SRI tends to go by many names, including values-based investing, sustainable investing and ethical investing. The abbreviation SRI has also come to stand for sustainable, responsible and impact investing. Some SRI practices use a framework of environmental, social and governance factors to guide their investing. This is generally referred to as ESG investing.

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Who Might Be Interested In Esg Integrated Funds

  • Those who want to invest responsibly without imposing specific restrictions on their investment
  • Those who think companies with a focus on environmental, social and governance issues could perform well over the long run
  • Those who want to make sure the diversification of their investment is not impacted by their desire to invest responsibly
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    What Is Ethical Investing

    Ethical investing involves matching your investment portfolio with your personal values. That could mean choosing stocks or funds that align with your social, moral, or religious beliefs.

    Ethical investing means putting your values ahead ofor at least on par withprofit in your investment decisions, says Robb Engen, founder of personal finance blog Boomer and Echo.

    For instance, a climate-concerned investor may build a portfolio that invests in renewable energy. An animal lover may seek to support industries committed to improving animal welfare. Other investors may simply exclude certain stocks but are cool with companies engaged in fossil fuels or animal testing.

    Finding out what it really means to invest ethically and the differences between terms like ethical investing, responsible investing, impact investing, among others, will help you create an investment portfolio that represents your attitudes and beliefs.

    The Esg Investing Boom

    The Complete Idiot

    Recent years have seen a significant expansion of ESG investing around the globe as organizations and individuals increasingly recognize the interdependencies between social, environmental, and economic issues.6 The COVID-19 pandemic encouraged this trend notably.7 caused by the pandemic in 2020 led many investors to turn to ESG funds for increased resiliency. In fact, the first three months of 2020 saw $45.6 billion USD flow into these funds globally.8 $30.7 trillion currently sits in sustainable investment funds worldwide, and it is predicted this could rise to around $50 trillion in the next two decades.9 More investors are looking to fund organizations and products that support and promote sustainability, and comply with emerging regulations such as climate change regulations. This demand has been met with increased action on ESG issues in the business world, as well as progressively higher returns on investment for ESG funds due to their resilience against conventional market disruptions.10 Portfolios incorporating ESG and sustainability also frequently perform better in the long-term than those that dont.11 For example, US financial services firm Morningstar found that over a period of 10 years, 80% of blend equity funds investing sustainably outperform traditional funds.12 They also found that 77% of ESG funds that existed 10 years ago have survived, compared with 46% of traditional funds.

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    How Profitable Is Socially Responsible Investing

    One key concern of investors is whether investing more mindfully is actually profitable. The point of investing is to put your money in places where you think it will find the greatest returns and involving the ethics of corporations may seem counterintuitive to some. However, socially responsible investments that score well in ESG criteria have proven to be just as profitable as traditional investments if not more so.

    According to data gathered by RBC Capital Markets and shared by the New York Times in August of 2020, 64% of actively managed ESG funds beat their benchmarks compared to 49% of traditional funds in August of 2020. More investors have become interested in corporate responsibility and sustainable investing in recent years, and with the growing interest has come increasing returns.

    Why Choose Ethical Investments Over Others

    For starters, ethical investing can help grow your nest egg. More research from the RIA study shows that responsible investments can perform just as wellor even betterthan traditional investments. Its partly because incorporating ESG factors can help reduce exposure to risks not typically visible within corporate financial statements, leading to better long-term financial success.

    For example, a study by Carleton University found that SRI equity mutual funds in Canada outperformed their respective benchmarks 63 percent of the time. Another 2021 study by SOM for Desjardins found that responsible investment funds outperformed traditional Canadian equity, U.S. equity, and global equity funds over three-, five- and 10-year periods.

    But perhaps the biggest benefit to ethical investing? Feeling good about where you park your hard-earned bucks.

    You want to help build a better future that cares about the environment, gender equality, social justice, human rights, and more, says Engen. You vote with your wallet to encourage companies to change for the better.

    Inspired to start ethical investing? Check out our webinar to learn more. You can also make an appointment to speak to one of our financial advisers about building an investment plan that aligns with your values.

    The stuff we have to say.

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    It Is The Same As Sustainable Ethical Socially Responsible And Impact Investing

    • There are many terms associated with the plethora of investment approaches that consider environmental, social and governance issues. Most lack formal definitions, and they are often used interchangeably. A key to understanding how responsible investment is broader than these concepts is that where many make moral or ethical goals a primary purpose, responsible investment can and should also be pursued by the investor whose sole focus is financial performance.

    Youre Standing Up For Good

    SRI: How Can I Invest in a Socially Responsible Portfolio?

    A lot of people know that injustices are happening but choose to turn a blind eye to it for whatever reason. Maybe they think one person wont make a difference or maybe they just dont want to put the time or energy that it would take to effect change into it. The right choice is not always the easiest choice. SRI investing is an ideal opportunity for investors to stand up for what they believe in. Its an opportunity not to enable companies that are misbehaving. If more of us choose to refrain from investing in the culprits, it would make a significant difference in terms of those companies choosing to make better decisions.

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    Working With Companies To Drive Improvement

    Fund managers practicing good stewardship normally see themselves as part-owners of the businesses they invest in and want to make sure they’re run in a way that benefits all shareholders.

    Managers focused on stewardship normally engage with company management to make sure their voices are heard on issues that are important to investors, either by using their votes at annual general meetings or contacting company managers directly.

    Lots of fund managers use their bargaining power to push positive change. That might include cost-cutting measures, or changes to a companys senior management. But some go a step further.

    Some lobby company managers on environmental, social and governance issues. That could range from setting targets to reduce waste and carbon emissions to making sure companies treat their suppliers, customers and employees well.

    Most mainstream fund management companies practice stewardship in one form or another. To find out more about how stewardship is integrated in a given fund, you’ll need to check its prospectus.

    How Socially Responsible Investing Works

    If youre wondering how socially responsible investing works, the short answer is that it works the same as investing in anything else just with a bit more thought involved. When choosing companies to invest your money in, rather than just choosing based on potential financial returns, you would also take into account whether the company operates in line with your morals and ideals.

    For example, if youre passionate about social justice, you might invest in companies that support people of color, women and other marginalized groups. There are many mutual funds now centered around investing in socially responsible companies, making it a little easier if youre not sure what individual businesses to support.

    Its important to remember that not all companies are socially responsible or they may take actions that conflict with your beliefs. For example, if you invest in a company that mistreats its employees or actively contributes to pollution, you may choose to stop investing in their business because of their negative impact.

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    What Is Esg Investing

    ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities. ESG metrics are not commonly part of mandatory financial reporting, though companies are increasingly making disclosures in their annual report or in a standalone sustainability report. Numerous institutions, such as the Sustainability Accounting Standards Board , the Global Reporting Initiative , and the Task Force on Climate-related Financial Disclosures are working to form standards and define materiality to facilitate incorporation of these factors into the investment process.

    • The Certificate in ESG Investing offers you both practical application and technical knowledge in the fast-growing field of ESG investing.

    How Could This Affect Performance


    A focus on stewardship has the potential to boost returns. If shareholders work with company management to bring about positive change, such as greater efficiency or productivity, this could boost performance in the long run.

    Attentive shareholders can also provide an additional layer of scrutiny for company managers, helping to ensure that investors’ interests are at the centre of corporate decision-making.

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    What Could Sri Investing Look Like For You

    One of the perks of SRI investing is that theres a great deal of room for interpretation when deciding what it means to you as an individual investor. For some people, it may equate to investing in companies that promote gender or racial inclusivity in the workplace, while for others it may mean investing in industries that are developing cleaner forms of energy. For other investors, it may be more a matter of what not to invest in, such as tobacco companies, gun makers, or companies that are known for leaving behind a large environmental footprint.

    As mentioned above, the definition of social responsibility can vary from person to person. The trick is to sit down and figure out what causes mean the most to you. Some questions you might ask yourself include:

    • What are the top one to three social changes Id love to see happen within the next decade? Or within the next 25 years?
    • If I had the power to change one of the following issues, which would I choose?
    • Am I looking for a shorter- or longer-term investment?
    • Do I want to invest in individual companies, exchange traded funds , or mutual funds?

    As you can see, there are no right or wrong answers. After narrowing down your focus, be sure to do your due diligence to research which companies or funds seem to be the best investments based on their fundamentals and/or performance.

    What Is Social Investing

    Mayor of London Sadiq Khan speaking about green investments

    Social investing is often referred to as SRI . Its a type of impact investing that focuses on companies with equitable social practices. This includes a diverse executive leadership team made up of different genders and races. It also includes companies with a commitment to prevent modern-day slavery and child labor.

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