We all want to create a better future. Not only for ourselves and our loved ones, but for our communities and the planet, too. Sustainable investing – which can include socially responsible investing, impact investing and ESG investing – is a way for you to do both! By favouring companies that maintain positive business practices, you’ll be investing in a sustainable world and helping to influence positive change with your money.
Read on to see why more and more people are adopting the role of responsible investor, and if it might be the right strategy for you.
What is sustainable investing?
The traditional investment approach is to invest in companies that project a strong financial report, taking into account factors such as earnings, profit margins and debt levels.
Sustainable investing, on the other hand, looks beyond the income statements and balance sheets. It can be incorporated through a variety of strategies. Many investment firms take an ESG-integration approach, which views potential investments through the lens of environmental, social and governance (ESG) factors. Another approach is impact investing, which focuses on addressing the world’s most-pressing environmental and social challenges. This approach can broaden investment returns beyond purely financial gains, into the realm of positive and measurable social and environmental impacts.
Whatever the approach, the ultimate goal of all sustainable investing is to deliver both financial and purpose-driven outcomes. As such, it can mean investing in ethical funds for stronger local communities, sustainable energy or environmental sustainability, and the list goes on. It can also mean choosing green investment companies or people-first co-operatives. To become a responsible investor, you simply have to decide which sustainable-investing options best match your values and priorities.
How are sustainable investments selected?
The funds that make up a sustainable-investment portfolio are subject to Principles for Responsible Investment, or ESG investing principles.
Essentially, fund managers assess prospective companies on how well they integrate ESG factors or socially responsible philosophies into their operations. It’s not only if they generate profit, but how they generate that profit. This analysis, subsequently, shines light on the state of management, ongoing sustainability efforts, and overall outlook (both financial and societal) of a company.
Using an ESG approach, companies are screened for:
- Environmental factors, including their greenhouse gas emissions, waste and pollution output, contribution to resource depletion (e.g., water waste and deforestation), and overall contribution to climate change.
- Social factors, including their employee relations and diversity, working conditions, impact on local communities, health and safety infractions, and any human-rights violations (e.g., child labour).
- Governance factors, including their board diversity and structure, tax strategy, executive salaries, and any political lobbying and donations (or related corruption).
Companies assessed to have a positive reading are contenders for ESG portfolios. Overall, these companies have a high ESG score (compared to their peer group), which suggests that they are making good on specific practices through their operations, products and services.
On the opposite end, negative screens indicate that companies are underperforming around ESG practices, or are contributing negatively to the environment or society. Logically, those with negative readings are excluded from sustainable-portfolio consideration.
In the similar case of impact investing – a strategy that is rapidly growing in popularity – investments are selected for the degree to which they generate positive impacts on society, along with a positive financial return. The areas of focus can range from climate change to education to community development.
Remember, just because a company or fund is branded “socially responsible” doesn’t mean that it will remain so in practice. As investors, we have to be diligent, and we have to reassess from time to time.
What are the benefits of sustainable investing?
To punctuate a point, if you’re passionate about environmental sustainability (like clean energy) and social justice (like equality), then sustainable investing may be for you. Because it’s not only about what you invest in, but what you don’t invest in. Among the many benefits, you can:
Invest for the greater good
Whether you choose funds that demonstrate strong ESG practices, that focus on impact, or that have business strategies aligned with the UN Sustainable Development Goals, you can take comfort in knowing that you’re creating positive change with your investment.
Invest for performance
Contrary to what some investors believe, investing in a sustainable way doesn’t mean forgoing strong returns. As with most investments, you’re subject to fluctuations, based on the market’s performance – or a company’s financial performance within it.
Looked at another way, as one of the many upsides, identifying and addressing key ESG risks before they happen – environmental accidents or issues around employee health and safety, for instance – can help to reduce risk of exposure surrounding your investments.
Sustainable investing doesn’t have to come at the sacrifice of diversification, either. Like traditional portfolios, sustainable portfolios are regularly invested across asset classes, geographic regions and responsible investing strategies, allowing you to effectively match your portfolio to your risk tolerance.
Invest according to your values
Sustainable investment opportunities often reflect emerging political and social trends, allowing you to easily align your investment choices to your values and beliefs. For example, if you want your money to play a role in mitigating the climate crisis, you can trend toward companies that reduce emissions, that rely on clean energy sources and that offer environmentally friendly products. Similarly, as an advocate for social change, you can invest in companies that promote justice, equality and inclusion.
Again, don’t let your guard down. Just as investments can benefit from popular public sentiment, values change – and quickly. Sometimes, all it takes is a single news story or a social media post.
Want to become a responsible investor?
It’s hard to ignore what’s happening around the world. Climate change, for one, is a threat to everyone’s future. The good news? Knowing that complex problems require collaborative solutions, we all have the choice to play an active role, to any comforting degree.
With Co-operators, it’s easy to take on the role of the sustainable investor and adopt a socially responsible, impact or ESG-based investing strategy. We offer a suite of sustainable-investment options to meet your goals and risk tolerance. Co-operators Sustainable Investment Portfolios have been carefully constructed – in partnership with Addenda, a leader in sustainable investments – to be low-cost (important to building financial security) and with positive long-term impact in mind (supporting the transition to a more-sustainable economy). Available in both mutual funds and segregated funds, these investments are managed by some of Canada’s leading fund managers.
As a caring co-operatives, sustainability is deeply ingrained in our values. We are proud to be leaders in sustainable investing, and we are equally proud to have been recognized as such.
As an experienced financial services company, we can help you benefit from this experience and leadership position. Together, we’ll find the right investments for your values – helping you drive positive outcomes for your community and your financial future.
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