What does it mean to be a socially responsible investor, and do you currently hold socially responsible types of investments in your current investment portfolio? This is a growing segment in investor’s investment portfolios and many new investments are now geared towards companies with strong strategies to improve our world for the better. Some investment firms are more hands on than others, where others advocate and provide guidance to companies who they’re invested in to be more socially responsible.
Climate change continues to make global headlines. While there are varying opinions about it, this sensitive topic will continue to be a topic of discussion. Reducing the effects of climate change has been a challenge for many years, making it hard to reflect and measure how the actions of individual investors can make a difference. However, choosing investments that are more socially responsible can be a step in the right direction.
Change typically doesn’t happen overnight. Industries, governments and individuals can take many years to adapt to evolving circumstances. However, when a few large companies take aggressive steps in an area such as reducing carbon emissions, they can create a ripple that turns into a wave. The innovators and early adopters at the start of that wave tend to benefit the most. Those who are slower to join the cause may become “dinosaurs”.
For investors, the key is awareness of global trends that may affect their investments and when appropriate, to look for opportunities to become early adopters themselves. Being at the forefront of change means helping to support the cause, rather than following others after it becomes mainstream.
Portfolio managers conduct their due diligence and ultimately determine whether to invest in these types of companies who display a commitment to strong Environmental, Social and Governance (ESG) policies, which can ultimately affect your bottom line by potentially reducing investment risk and enhancing returns.
Many portfolio managers offer Environmental, Social and Governance (ESG) integration into their investment solutions and when they review these factors, it often involves:
- Environmental factors – how the business operation of a company can affect the environment in which it operates in and how that environment affects the company.
- Social factors – Often includes the relationship between a company and its employees, suppliers and communities
- Governance factors – the structures or systems a company has put in place to ensure effective direction and control.
Portfolio managers can look for ESG factors before an investment is made or often times, they will be working directly with companies to improve their ESG factors. The important part about ESG integration, is that it’s part of an overall philosophy that is committed to reducing risk and improving returns over the long term for investors. An added benefit is that it requires companies to be more accountable for their ESG impacts, which can lead to a more ESG-conscious world.
By having ESG integration into your current investment portfolio, there is a link between long-term sustainable returns and above average financial results. At the same time investors are increasingly aware of issues such as energy and water use, climate change, diversity and human rights leading to this growing segment of socially responsible investing in an investor’s investment portfolio.
With growing consensus around the world that action is necessary to reduce carbon emissions and mitigate rising temperatures, the companies that are taking action now are taking control of their future. Through investment solutions that focus on these types of businesses, investors too can make a positive difference. Investors can therefore share in the potential growth of companies that are planning for tomorrow, today and enhance their potential long-term investment returns.
Speak with your advisor on how you can make a difference by investing into socially responsible companies.
Taylor Szeto, B.Comm.
Insurance Representative, Wiegers Financial and Insurance Planning Services Ltd.
Account Representative, Manulife Securities Investment Services Inc.
The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Investment Services Inc. This publication is not an offer to sell or a solicitation of an offer to buy any of the securities. The securities discussed in this publication may not be eligible for sale in some jurisdictions. If you are not a Canadian resident, this report should not have been delivered to you. This publication is not meant to provide legal or account advice. As each situation is different you should consult your own professional Advisors for advice based on your specific circumstances.
Mutual funds are offered through Manulife Securities Investment Services Inc. Insurance products and services are offered through Wiegers Financial & Insurance Planning Services Ltd. Banking products and services are offered by referral arrangements through our related company Manulife Bank of Canada.