The long-standing tug-of-war between the head and the heart has been evident in human behaviour since, well, the dawn of humanity, trickling outward from our internal lives and into our institutions: educational, social, and financial. But with the onset of COVID-19, and the increasingly urgent need to transition to a low-carbon economy, our systems are shape-shifting in cataclysmic ways, from how we interact (six feet apart, please) to the ways we work and spend. With the world quite literally at stake in recent years, financial managers have witnessed a blurring of the usual either-or between prosperity and social good, with many investors turning towards a responsible investing (RI) approach as a means to make money, yes, but also make their money matter.
While many Canadians may be keen to humanize their portfolios post-pandemic, according to a 2018 Desjardins study, half of us still don’t know what this involves in a practical sense. According to Deborah Debas, a responsible investment specialist at Desjardins Wealth Management, your financial planner can help educate you on the matter.
“When you invest in a mutual fund, for example, some of your money will go towards companies that are publicly traded on the markets,” says Debas. “A portfolio manager looks at their balance sheets to understand their growth perspectives in the long term. It’s pretty much the same with RI, except we add another layer on top, evaluating the companies’ environmental, social, and governance practices, or ESG. That [acronym] is all over the headlines right now in financial media, but it’s not all that new of an idea.” For its part, Desjardins just celebrated the thirtieth anniversary of its first RI fund in September. It has sixteen RI funds and portfolios that are free of oil production and pipelines.
Debas says that the additional ESG research allows portfolio managers to identify “companies of the future,” ones that are uniquely suited to identify and navigate risks and opportunities, inclusive of massive disruptors beyond the usual market fluctuations (see: climate change). “We select companies with strong management teams, products, and services that are geared towards solutions, so they’re better equipped for the long term, which is more suitable for the markets we’ve seen since COVID-19 hit.” In fact, Debas notes that, in the first half of 2020, RI funds have outperformed the market, owing to their natural resilience in a downturn.
If investors are keen to explore RI-friendly options, they should be prepared to ask questions of their advisor, not just the other way around. Some advisors will proactively ask you if you’re interested in taking ESG into account, Debas says, but some may not. In fact, a staggering 86 percent of them don’t. “In addition to establishing your objectives and risk tolerance for your investor profile, don’t be afraid to inquire whether they have any sustainable investments, and what their overall strategies are. In other words, are they really demonstrating a high conviction to find companies with high financial and ESG standards?”
The next step—choosing which funds to add to your portfolio—is where investors can flex some financial creativity. There are the usual core funds, essential for any portfolio, and then there are narrower “thematic” funds; at Desjardins, for example, there is the SocieTerra Positive Change Fund, which funnels money into a wide range of firms targeting issues of health, well-being, and social and financial inclusion. “People tend to think RI is narrowly focused, like we’re only invested in windmills and planting trees,” says Debas. “But the truth of the matter is that RI funds invest in all sectors of the economy—save for obvious sectors like weapons and fossil fuels. If you invest in Canada, you’ll have a diversified portfolio, one representative of the Canadian economy—banking, communications, resources, all of it. And you’ll be able to influence companies in improving their ESG practices.”
For investors who still have niggling concerns about profit—there’s that head again—Debas can assuage those very reasonable financial fears. “Very often, worries come with a misconception about what RI is. People are afraid that the performance of RI funds might not be on par with others in the market,” she explains. Debas then cites a comforting figure: upwards of 2,000 studies have proven similar or above-market returns for ESG-focused companies, so worry not about a compromise. “It’s definitely not mutually exclusive. You can have the best of both worlds.”
