What is responsible investing

Linson

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Linson Chen

Financial Advisor & Associate Portfolio Manager

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Responsible investing (also known as ethical investing and socially responsible investing) is growing in popularity as more investors are seeking to align their portfolios with their values.

Responsible investment incorporates environmental, social and governance (ESG) factors into the investment selection process to help manage exposure to risk and opportunities that are not captured by traditional financial analysis. This includes the following:

Environmental

  • Climate change
  • Resource management (water)
  • Waste and pollution
  • Deforestation

Social

  • Working conditions (child labor)
  • Local communities (indigenous)
  • Health and safety
  • Employee relations and diversity

Governance

  • Executive pay
  • Bribery and corruption
  • Political lobbying and donations
  • Board diversity (women)

Other responsible investment strategies:

  • Negative (avoidance) screening refers to the exclusion of certain industries that manufacture certain products that are objectionable to some such as tobacco and weapons.
  • Positive (affirmative) screening is more proactive and seeks out companies who show leadership in products that advance sustainability such as the development of renewable energy and water treatment infrastructure.  It may also include companies based on positive ESG performance relative to their industry peers.
  • Shareholder engagement influences corporate behaviour through senior management dialogue, filing shareholder resolutions and proxy voting in areas such as living wage, gender diversity, and food waste.
  • Thematic investing focuses on a specific area such as clean technology, gender diversity, energy efficiency and green infrastructure.
  • Impact investing aims to solve social issues such as investing in affordable housing projects or funds that provide micro-loans to low-income countries.

The goal is to encourage responsible and sustainable approaches to investing.  It is important for investors to understand that not all approaches are created equal.  Consult with an advisor to carefully look under the hood to understand the selection process.