Sustainable Investing
Today, there’s never been more evidence that sustainability is seen as a path to creating long-term value for shareholders while also contributing to a better environment, healthier communities and good corporate governance practices.
It’s not surprising, then, that interest in responsible or sustainable investing has increased substantially over the last decade around the world and across all audiences, from individual retail investors to the largest institutions.
Growth of Global Sustainable Investments (2016 to 2018)
Investing with Purpose
As with any investment strategy, it is imperative to clearly define the investment objective and desired outcome. Incorporating sustainable investments can not only support but also provide added value to traditional objectives.
The consideration of environmental, social and governance factors have shown to help reduce exposure to risks and mitigate drawdowns in a portfolio.
Source: MSCI World Index, “Has ESG Affected Stock Performance?”, November 2017. Data from January 2007 to May 2017 based on MSCI's ESG Ratings. Note: MSCI used a full three-year look-ahead window in reporting results. For each month, MSCI reported the number of stocks that realized a more than 95% cumulative loss over the next three years, taking the price at month end as the reference point for the return calculation. Thus, the last data point is from May 2014. The MSCI information may only be used for your internal use, may not be reproduced or disseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com).
ESG factors may materially impact the value of a company. Companies with improving practices related to environmental, social and governance issues can help investors effectively manage long-term risk and provide competitive returns.
Source: "What is RI?”, Responsible Investment Association, December 2018. The Jantzi Social Index (JSI) is a socially screened, market capitalization-weighted common stock index consisting of companies that pass broad set of ESG criteria.
Individuals and institutions are increasingly considering sustainable investments in an effort to contribute to a positive social or environmental change and have influence through shareholder engagements.
Top-of-mind ESG Issues:
of Canadian investors believe believe it’s likely that climate change will create risks for the global economy within five years
of institutional investors globally believe that gender diversity on boards is important to their organization
Source: “2018 Responsible Investing Survey,” RBC Global Asset Management, October 2018.
Sustainable Investing Approaches
In response to increasing interest, a wide spectrum of sustainable investing approaches and products have developed, ranging from mainstream investment management teams beginning to consider environmental, social and governance (ESG) issues as part of their investment processes to highly specialized 100% impact groups.
ESG Integration
Combines ESG data, research and analysis together with traditional financial analytics in the investment decision-making process. May not explicitly exclude investment in undesirable countries, companies, etc.
Thematic and Impact Investing
Invests in sustainable businesses that are related to and likely to benefit from specific themes (i.e., energy efficiency, green infrastructure, clean fuels, low-carbon transportation infrastructure) or to generate a measurable, beneficial social and environmental impact alongside a financial return.
Exclusionary Screening
Excludes companies, sectors, or countries based on ethical, moral or religious beliefs.