Investing has traditionally revolved around a simple objective: build, grow and preserve wealth over the long term. In recent years, however, more and more Canadians are looking at their portfolios with more than just returns in mind. From large pension funds to individuals saving for retirement, investors of all types are now considering the social and environmental impact of their investment decisions.
Socially responsible investing (SRI) can take many forms, but in general it involves screening out companies that fail to meet a minimum standard of social responsibility and environmental sustainability. For example, an SRI mutual fund will likely screen out tobacco manufacturers, heavy fossil fuel producers, and companies known to use offshore suppliers with a record of mistreating employees, to name a few. These funds also tend to seek out companies that incorporate social and environmental responsibility into their mission statement, such as green energy producers.
All of this may sound great on paper, but what are the consequences for investment performance of incorporating SRI into a portfolio? Many naturally assume that investing with a conscience means sacrificing some return potential. But the evidence consistently shows that, on average, funds that consider environmental, social and governance factors perform as well as or better than conventional approaches.1 A key reason for this is that these funds invest in companies that meet both socially responsible criteria and the rigorous requirements of traditional security selection. As a result, if an investment is attractive from a social responsibility perspective, but falls short from the point of view of bottom-up, fundamental analysis, it won’t make it into the fund.
Increased investor interest in SRI has led to a plethora of new investment opportunities. SRI funds are now available for virtually every segment of your portfolio, from global equity to domestic fixed income. If you think SRI could have a place in your long-term investment plan, speak with your advisor to learn which funds might be right for you.
Dermot Foley, CFA, CIM
Portfolio Manager, Vancity Investment Management Ltd.
1Responsible Investment Association of Canada, https://www.riacanada.ca/responsible-investment/#benefits-of-ri
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