Tag Archives: SRI

Investing to make a difference in the world

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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. Continue Reading…

Thinking responsibly about socially responsible investing

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By Tea Nicola

(Sponsor Content)

“Do the right thing.” That’s the new corporate motto for Alphabet, Google’s parent company, putting a more proactive spin on Google’s “Don’t be evil.” (Interestingly, as of this month, Google has eliminated the phrase from its corporate code of conduct).

On the one hand, Google’s change in mantra from “don’t be evil” to “do the right thing” is a perfect example showing we do not want to just avoid the worst, but elevate and encourage the best.

But what does the new motto mean, exactly? That motto, and that overly simplistic approach, is also what’s tripping up investors when it comes to Socially Responsible Investing (SRI).

SRI can be a great thing for investors. According to a Deutsche Bank study of more than a decade’s worth of data, ethical funds perform very well, indeed. That performance-plus-values formula explains why assets in Canada managed using one or more responsible investing strategies adds up to $1.5 trillion.

While the Responsible Investment Association noted individual investors’ responsible investment assets were up 91% in two years, a large chunk of that $1.5 trillion comes from institutional investors. That’s a good sign that the smart money is definitely aligned with fighting climate change, promoting human rights and admirable causes.

That enthusiasm is only likely to grow, assuming the younger generation keeps up their habits. Millennials are twice as likely as baby boomers to pick investments if they help solve social or environmental problems, according to a recent Ipsos survey cited in Business in Vancouver. The same report noted “about 38% of the US$5 trillion global public equity market is subject to some level of investment “screening.”

Demand is there. But for SRI, the devil is in the details.

Green oil companies, dark tech firms and shades of grey in SRI

What does SRI boil down to for a lot of investors and portfolio managers? Guns and tobacco, bad. Organic food retailers, good. Dirty, fossil-fuel-extracting drillers, bad. Silicon Valley tech companies, good. And on and on it goes.

There’s nothing wrong with trying to create simple investment categories. That’s particularly true for retail investors. Realistically, they might want to devote the bare minimum of time examining the holdings of various portfolios.

Nothing wrong with the intent, anyway. But execution is tricky.

Clean, green oil?

For instance, those giant fossil fuelled energy dinosaurs like Exxon and Shell? This sector has spent billions on cleantech. It’s in their interest to go lean and green, making their operations ever-more-efficient. Certainly, US and Canadian energy companies have stakeholders demanding higher standards, compared with Mideast producers. When Big Oil is also Clean(er) Oil isn’t it a bit perverse for ethical investors to stay away?

And of course, if the whole purpose of investing is to get a good return, that decision to turn away from this sector would seem downright irresponsible when oil is on a tear. Yes, green energy is the future … but investors want returns now, not just 10 or 20 years from now.

Socially responsible investors often risk unintended consequences. Another kind of oil (not the kind you put in your car), palm oil, went big a few years back. It was seen as a kind of superfood and made its way into a bevy of edible and beauty products. It was a clean, organic product … and then people realized that its cultivation was actually harmful to rainforests that got cleared for palm oil production.

Don’t be evil (or just kind-of-evil) … wink, wink, Facebook, Apple, etc.

The much-celebrated FAANG stocks represent the profitable innovation of Silicon Valley (Facebook, Amazon, Apple, Netflix, Google). Their leaders are seen as visionaries. The legions of smart people who work for these firms have created products that add immeasurably to the convenience and comfort of modern living. Their gleaming campus-sized, solar-powered, people-friendly office spaces are surely the opposite of the “satanic mills” of the coal-powered, mutilating sweatshops of the industrial era. Until quite recently (and coming soon once more), they were the stars of investor portfolios. Continue Reading…