Make Your Money Talk: Investing Responsibly
What if your cash could do more than sit in the bank? What if, by investing, you could create positive outcomes beyond growing your savings? Marie Charles Pelletier offers a guide to help you master responsible investing, along with busting some myths.
Text—Marie Charles Pelletier
In partnership with
What’s the first thing you would do if you won the lottery? A few years ago, I would have booked a trip to the Cook Islands, squandering my winnings on margaritas and mahi mahi, convincing myself that I was at least supporting the local fishing industry. Today, I’d call a financial advisor, thanks to whom my new-found fortune would have a better chance of growing, while also serving others. Up until recently, I knew very little about investing, and certainly not that you could invest responsibly. I was happy to discover that there is a whole movement around it. Responsible Investment (RI) means taking environmental, social, and governance (ESG) factors into account, along with the usual financial criteria, when selecting and managing investments. Through RI, you can encourage companies that are known for their good practices.
RI has been gaining ground for decades, its popularity growing commensurately with the challenges facing our societies. Perhaps due to the scale of these challenges, the last few years have seen a lot of interest in RI. The 2020 Canadian Responsible Investment Trends Report shows that RI represents 61.8 per cent of Canada’s investment industry, up from 50.6 per cent two years ago.
While the pandemic is not solely responsible for this growth, it certainly led many of us to reflect more deeply on the future, our battered planet, and what we owe to our communities. Now more than ever, we need to demand that our investments help solve important issues: that they have a larger impact.
I was 30 before I even remembered that RRSPs exist, so I’m not here to lecture anyone about finances. I still mostly snub the business section of the newspaper. But I do want to let you know that your monthly savings can be a driver of change.
A brief history of RI
Early forms of responsible investing date back to the late 19th century, when English Quakers refused to invest in alcohol and weapons. Much later, in the 1960s and 1970s, RI gained traction in light of major geopolitical tensions. People were growing to understand that shareholders carry political and social weight. Amid outrage over the Vietnam War, Pax World was formed in 1971. The first responsible mutual fund in the United States, it refused to invest in companies supplying the U.S. military with weapons, napalm, and Agent Orange.
The Desjardins Environment Fund was launched in the wake of the Brundtland Report (1987), which defined sustainable development as we know it today: that is, development that meets the needs of the present without compromising the ability of future generations to meet their own needs. The first of its kind in Canada, the Desjardins Environment Fund was created to offer the co-operative’s members their choice of responsible investments, respecting the needs of both the present and the future. At the time of its founding, in September 1990, it was considered fringe to take extra-financial criteria into account.
There’s a growing appetite for RI in the U.S. as well: US $51.1 billion were invested in responsible funds in 2020, as compared to US $21 billion in 2019. According to financial research company Morningstar, it was the fifth consecutive annual record.
In short, we’re witnessing a sea change.
Okay, so how does it work?
RI lets us save our money while contributing to sustainable development and societal well-being — respecting both our wallets and what’s in our hearts. That all sounds great, but I wanted to know how.
Responsible investment strategies come into play at two points in investing:
- In picking securities: you can select the stocks and bonds of companies based on ESG criteria. Is the company meeting or trying to meet these standards? Some portfolios exclude entire industries — like fossil fuels or tobacco — because they do not respect the minimum requirements of ESG.
- In investment management: shareholder engagement enables interaction with the companies you’ve invested in to push them to improve their practices.
Rest assured: you don’t need to have an MBA. Portfolio managers are tasked with being your eyes and voice. They’re your trusted link to the companies you’re investing in, and they’re responsible for studying them. They ask the right questions to determine whether a company adheres to ESG principles before buying any of its shares on the stock market. They then continue to monitor whether it upholds these values in the future, all while assessing financial performance.
A closer look at ESG.
E refers to the management of environmental risks. Our economy is based on a linear production and consumption model, which puts enormous strain on our resources. RI instead values companies with circular economic initiatives: companies that are less extractive and optimise their use of natural resources, packaging, and recycling. Environmental criteria favour companies that take into account climate change, biodiversity, water management, and much more.
S refers to tackling social and economic inequalities, which dampen the future of younger generations — a future already at risk due to our actions and inaction today. Social criteria include companies that respect Indigenous communities or campaign for human rights, workers’ rights, workplace health and safety, and access to education. I could go on.
G covers everything related to the governance of a company and its practices, which must help improve society. Examples of governance criteria include measures that promote diversity on the board of directors or that address executive pay.
Concrete impacts (for people who love numbers)
In 2020 companies the Desjardins SocieTerra Funds invested in — to the tune of $10 million CAD (1) — helped prevent the emission of 555 tonnes of CO2e (the equivalent of the annual emissions of 134 cars (2)) and save 6.3 million litres of water (the equivalent of the annual water consumption of 52 Canadians (3)).
Deconstructing three myths that I, too, believed until recently.
– Myth no 1 –
Responsible investing is just a fad
Not at all: given that RI is a response to the major challenges of our time, I doubt very much it will be going out of fashion. In fact, its market segment is only increasing. According to the Portrait 2020 de la finance responsable au Québec, responsible finance represented approximately 68 per cent of the total collective savings of Quebecers as of December 31, 2019. It’s clear that RI is here to stay, and that if we want to build a greener, fairer world, we should jump on the bandwagon.
– Myth no 2 –
RI isn’t going to change the world
In fact, it already is. Investing can be a way of making one’s voice heard. Of course, some skepticism surrounds RI, especially as funds do not require companies to meet all three ESG criteria perfectly — and many don’t. But you can also look at investment as a means of applying pressure, and even as a driver of change. In fact, one goal of responsible funds is to ensure that companies improve their practices. Portfolio managers have voting rights and can start a dialogue with organizations — or, when that’s not possible, propose improvements that will be voted on at the next annual general meeting. If a company continues to figure in a responsible fund, it means it has a demonstrated desire to do better.
– Myth no 3 –
RI is less profitable than traditional investment
Actually, RI may give you better long-term returns, because the companies you’re investing in are less likely to be blindsided by social and environmental issues. Several studies have shown that organizations that align themselves with ESG criteria are better equipped to contend with fluctuations in the market, which means improved financial performance. In a new report, Moody’s Investors Service found that ESG products are steadily growing: they have been one of the best-performing investment categories in recent years. While past performance is no guarantee of future results, this increase might help convince people who have believed they couldn’t adhere to their convictions without sacrificing potential returns.
Responsible Investment: it’s all in the name
RI is a form of civic engagement. It’s one way that you can have a positive impact on our communities, rivers, and forests. Of course, the amount you can invest counts, but the number of people opting for responsible over traditional investing does too. The more of us there are, the sooner we’ll turn the tide.
(1) Source: Baillie Gifford Overseas Limited.
(2) Source: 2021 Fuel Consumption Guide.
(3) Source: McGill University.
For more than 120 years, Desjardins has been supporting its members and clients, while putting money to work for the greater good. It strives to constantly take greater account of environmental, social, and governance issues in its business decisions. A co-operative, it recently committed to training the vast majority of its 52,000 employees in sustainable development by 2023 and to investing at least CA $2 billion in renewable energy infrastructure by 2025. With more than 30 years of experience in RI, Desjardins continues to be a leader in its field.