Personal Investing For Sustainable Growth
By Gord Ball – Special to SUNonline/Orillia
When incorporated into a well-defined, long-term investment plan, sustainable investing can be a powerful tool for addressing global challenges while still achieving personal financial goals.
Sustainable investing offers a growing number of options for investors who want to pursue goals beyond financial growth when they build their portfolios. Investors are looking at how a company screens their investments as well as considering a company’s environmental, social, and governance (ESG) standards and behaviours.
“Investors these days are paying more attention to where their money is invested. They are not looking only at financial return,” said Barrie-based investment advisor, Jackie Ramler of Executive Wealth Advisors, Raymond James Ltd.
Environmental considerations means how a company treats the natural environment, including corporate policies addressing climate change. Social means how they manage relationships with their employees, suppliers, customers, and the communities where they operate. Governance deals with a company’s leadership.
While conventional investing is focused on risk and return, and philanthropic investing seeks solely to benefit charities and causes without expecting income, sustainable investing aims to accomplish both. Individual investors and even portfolio managers are increasingly considering ESG themes in their decision-making, combining ESG criteria with traditional financial considerations.
“The trend was there before,” said Ramler, “but ESG investments have faced a trifecta of challenges in the last few years.”
First, during 2020/21, an over-heated market meant ESG investments became over-valued. Second, ESG companies, which are often capital-intensive and can hold a lot of debt, faced rising interest rates. And third, politics and misinformation intervened – voices rose up against electric vehicles, against clean energy, even denying climate change. Many companies in the new ESG economy got hit in the squeeze.
“Now, at the maximum point of opportunity, it’s tough when investors and companies are coming off the last few years. The market is only up today because oil (25% of the total Canadian market) has made a strong run. When oil does well, when the banks do well, then the market does well.”
Some of the large banks are heavily invested in fossil fuels. When investors consider the top holdings in their funds, they can become frustrated to see that they’re investing in companies that don’t align with their values and principles.
Investors may consider sustainable investing for several reasons. They may aim for a positive impact, or to avoid ties to questionable activities. They may not feel comfortable investing in companies with business practices they view as morally objectionable. They may also realize that companies with a negative reputation or poor business practices may not be sustainable over the long-term.
“Most investors are not aware they have choices. Once they find out they have options, and have informed support, they are investing more in ESG companies, whose profitability will only increase as their debt declines. The stock market used to have just a few cleaner options. We now have many more regular clean investments.” said Ramler, who believes many advisors don’t understand this; they look only at financial return. “There are some good ESG investments out there. You just need the right advice.”
“It’s about being future-focused. Our decisions today have a direct impact on the lives of our grandchildren. Through our investments, we’re creating the future we want to see.”
What is the average investor to do? Many investors have their money in managed funds, where individual holdings are not immediately apparent.
“We want people to look under the hood,” said Ramler. “Go to an independent source (e.g. morningstar.ca and take a look at the portfolio tab. You can get updates on your mutual funds there). Also, make your financial advisor aware that ESG investments are important to you. Some advisors are not aligned in this way and don’t have the necessary screening tools. They may not understand future goals beyond retirement or estate planning. Gauge whether your advisor understands what you’re talking about.”
Sources of information are important. While groups like the Responsible Investment Association promote responsible investments (Ramler is a board member), with some others, green-washing is common.
“Some of the screening tools still show fossil fuel companies as top-rated – discounting their environmental costs,” said Ramler.
(Images Supplied)
