Invest your conscience

Most investors have heard of sustainable investing, many even say it’s important to them, but few Canadians actively incorporate environmental, social and governance (ESG) factors when building their portfolios. 

Sustainable investing has come a long way. It wasn’t all that long ago that it was considered to be an obscure, fringe investing approach. Today, there are numerous ETFs and mutual funds for investors to consider (see for yourself) and investors don’t have to sacrifice performance to invest their conscience.

The iShares Jantzi Social Index Fund (XEN), one of the better known ESG ETFs in Canada, has outperformed the S&P/TSX Composite over virtually any compatible period. Over the past five years, the iShares ETF has returned 41% whereas the main Canadian index climbed 27%. Still, according to a recent study by Schroders only about one-third are actually invested in the sector. Why? Advisors say it’s a matter of educating clients as to what’s out there and matching their investment needs with the right product.

Canadian attitudes towards socially responsible investing

The Schroders online study, which involved more than 22,000 investors in 30 countries, suggests that 82% of Canadians are aware of sustainable investing.

But those ideas vary: 53% view it as investing in companies that are likely to be more profitable because they are proactive in preparing for environmental and social changes while 36% see it as focusing on companies because they are best-in-class when it comes to environmental or social issues or how the company is managed. And 16% view sustainable investing as avoiding controversial companies (such as alcohol, tobacco or weapons manufacturing).

Petra Remy, an investment advisor at Remy Brown Investment Group at CIBC Wood Gundy in Edmonton says she’s thrilled to see the progressive increase in interest in sustainable investing. “I’ve been doing this for 20 years so it’s exciting to see that.”

Still, she concedes that the apparent gap between interest and action is a challenge (only 32% of those surveyed said they often or always invest in sustainable products). “There are not enough investment advisors like myself working in this area,” she says. “So it’s still a bit of a specialty. We need more education around this and show people where to go to get this information.”

Researching SRI

Remy suggests the Responsible Investment Association, the umbrella group for responsible investment in Canada, as a good starting point for those interested in sustainable investing. But she adds it’s often up to the advisor to provide further education, depending on the client’s specific interests.

Ian Robertson, vice president and portfolio manager at Odlum Brown in Vancouver agrees that it’s the advisor’s job to match people with what they are comfortable with, whether that’s through their stock and bond portfolios, or through mutual funds or exchange traded funds. “Because [socially responsible investing] is such a big and complex area, it takes some good dialogue with some solid research on the investment side to sort out exactly what the next steps should be.”

With new clients at Odlum Brown, Robertson likes to begin by discussing values versus valuation. “Are you going to start with your values, and invest according to those? Or are we also going to look at the valuation of companies? It usually ends up being a mix of the two.”

In the end, says Robertson, clients need to reflect on what we can reasonably expect the investment community to do. “So while people need to think about how they want to invest, they also need to think about whether they fly south for the winter, whether they drive the car or take the bus to work. It’s a complex set of actions; investing is not a panacea for climate change, it’s going to help but people need to contribute with their own actions. This is one arrow in the quiver of tools we have to help move the world forward. We have to take our own individual responsibility as well.”

Doug Watt is an Ottawa-based freelance writer