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By Rajan Bansi, RBC InvestEase
Special to the Financial Independence Hub
It’s easy for Canadians to feel overwhelmed by all of the challenges we face in the world. The strength, sustainability and security of our communities can feel threatened by the effects of climate change, the prevalence of some of the most powerful firearms mankind has created, and the long journey still ahead of us to create a fair and just society where everyone feels welcomed and included.
The silver lining to the challenges around us is that our collective awareness and desire to own the responsibility for affecting change has never been greater.
As Canadians, we clearly understand how the choices we make today will shape the world we live in tomorrow. These choices include important decisions we make on a daily basis with regards to our money.
Up until recently, impact with our dollars has been largely regarded only in a consumer context. Yet, the mindset we have about how we act as consumers can also be applied to how we invest. Canadians really can impact the world by choosing investments that reward companies who are the best stewards of our communities and planet.
An investment approach, like our RBC InvestEase responsible investing portfolio, integrates environmental, social and governance (ESG) factors, allows Canadians to have such an impact on the world. An ESG approach typically assesses all companies in an investable universe based on a broad range of factors. These factors include environmental (e.g. carbon emissions, carbon footprint, raw material sourcing, emissions and waste), social (e.g. labour management, health and safety record, privacy and data security), and governance (e.g. board independence, executive compensation, tax transparency, anti-competitive practices) considerations that are relevant to the management team of every company. A robust approach, at the very least, reduces the weighting of those companies that score weakest through the assessment process, if not excluding them altogether.
Exclude tobacco, firearms and weapons
Of course, there are some industries that Canadians simply do not want to support. The most tangible way to act on this is by choosing an investment approach that excludes such companies or industries from investment capital. Some of the industries that elicit the strongest preference for exclusion amongst Canadians are tobacco, firearms (manufacturing and distribution), and controversial weapons manufacturers (cluster bombs, landmines, and chemical and biological weapons). A robust responsible investing approach takes these exclusions into consideration and combines them with an ESG approach to the remaining investable universe.
Directing investments towards responsible stewards of our society also resonates with Canadians across generational lines. A report published in 2017 by the Responsible Investing Association of Canada highlighted that over 80% of all Canadians were interested in responsible investing solutions, with support being highest amongst the Millennials (85%), followed by those identified as GenX (36-54 years of age, at 80%). Support amongst Baby Boomers (55+, at 69%) was also strong considering this investment category is still in its nascent stages.
We’re seeing similar cross-generational support for the new responsible investing portfolio that RBC introduced in May of this year, and interest in this new option has been nothing short of phenomenal. Our responsible investing page is already attracting more visits than our RBC InvestEase home page, and over 30% of clients now signing up are self-selecting this responsible investing portfolio.
Returns don’t have to be sacrificed
Another point in favour of responsible investing: returns do not necessarily have to be sacrificed when considering these solutions. In its 2017 report titled Total Societal Impact: A New Lens for Strategy, the Boston Consulting Group concluded, “companies that outperform in industry-relevant environmental, social, and governance (ESG) areas boast higher valuation multiples and margins, all other factors being equal, than those with weaker performance in those areas.”
There’s no doubt an enormous number of challenges are facing our communities and planet, but we all have an opportunity to truly make the difference we want to see through our choices. Responsible investing solutions are a means to also make this true for our investment choices.
Rajan Bansi is Senior Director, Investments & Advice, for RBC InvestEase.
