Responsible Investing, also known as Sustainable Investing, is investing that incorporates environmental, social and governance factors (ESG) into investment decisions. As a result, investors can invest in companies that align with their values.
When constructing a portfolio with Responsible Investing consideration, portfolio managers will examine a company to ensure they have policies and practices related to the Environmental, Social and Governance factors relevant to their industry.
“From an investor perspective, Responsible Investing gives peace of mind that there’s another layer of due diligence in the screening process by looking beneath the hood of just the company’s financial statements,” says David MacRae, Wealth and Advisory Services Director at Cambrian Credit Union.
Responsible Investing seeks to better manage risk (including value-destroying reputational risks stemming from climate change, pollution, working conditions, employee diversity, and corruption) and generate sustainable, long-term returns. When investors focus on an investment that matches their values, they are more inclined to ride out market volatility, meaning responsible investments are less likely to experience the levels of turnover seen in more traditional investments or mutual funds*.
What are ESG factors?
In this factor, the investor considers a company’s environmental impacts before investing. Examples of environmental impacts include carbon footprint, water use and clean technology.
This factor refers to a company’s social impact within the broader community. Diversity and inclusion, community engagement, and other social issues come into play. Analysts look closely at a company’s stance on these issues (among many others) before an investor adds a company to their portfolio.
The governance factor simply considers how an organization is governed or managed. The investor looks at the board of directors, overall transparency, shareholder rights, equity and diversity and even executive compensation.
Advantages of Responsible Investing?
Make a difference and a profit
Investors don’t have to choose between positively impacting their communities and making a profit. Responsible Investing allows both to coexist. We have the option to invest in companies that align with our values and can choose to avoid companies that don’t fit our values.
For example, an environmentally conscious investor can choose to invest in any company that’s not involved with oil and gas or companies that only use clean technology.
Reward ethical companies
Responsible Investing puts dollars back into more ethical companies, which enables them to continue to do business while driving positive change.
On the other hand, when more investors choose responsible investing, they forego other companies they consider unethical, which deprives that company of capital. In the long run, these companies will embrace sustainable principles and create an even bigger impact on the planet.
Reduce risk on your portfolio
Adopting Responsible Investing may help you reduce the risk of losing money in the future by diversifying your portfolio over a variety of companies. You’ll have more companies to choose from because more companies are choosing to align with ESG practices.
The NEI Approach
NEI’s ESG leadership has helped define, shape and integrate Responsible Investing into the hearts and minds of Canadian investors.
NEI has a 30-year track record of Responsible Investing and is a leader in the Canadian marketplace, so when you invest with NEI, you are investing in a solution you own.
You can make a difference
When you invest in NEI Select or NEI Private Portfolio, you have the power to make positive changes. As a shareholder (owner), NEI has proposed solutions to help companies change for the better.
Many companies have committed to using their voting power for diversity, and for over 15 years, NEI has focused on advancing gender diversity on corporate boards in Canada.
NEI has also worked to improve employee safety. For example, they engaged with CN Rail to link CEO pay to a safety metric, which has resulted in a safety performance improvement of 31% in Canada and 26% in the USA since 2007.
How can Cambrian help?
At Cambrian, we know that all our members have different needs, and we are prepared to work with each member for a tailored solution. Credential Asset Management Inc. Wealth Advisors at Cambrian are experienced and fully trained to support members looking to invest.
All Credential Asset Management Advisors at Cambrian Credit Union completed their Responsible Investment Specialization Designation, allowing them to guide you as you build your responsible investing portfolio.
Our advisors are available to answer any questions and offer guidance. Set an appointment today to get started.
This article is provided as a general source of information and should not be considered personal financial or investment advice or solicitation. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete.
NEI Investments is a registered trademark of Northwest & Ethical Investments L.P. Northwest & Ethical Investments Inc., and Credential Asset Management Inc. are wholly-owned subsidiaries of Aviso Wealth Inc. (“Aviso”).
*Mutual funds are offered through Credential Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured or guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. Their values change frequently and past performance may not be repeated.