Are my investments socially responsible?
You bring your reusable water bottle with you wherever you go. You use reusable bags at the grocery store. You consider energy efficiency in your home and you get inspired by today's youth bringing environmental issues to the forefront of policy. You are not alone.
We've seen an unparalleled level of action on climate change across Canada and around the world.
What does this mean for your investments? Does a solution exist that allows investors to choose companies they believe in and hold investments that match their personal values?
Socially Responsible Investing in Canada
Known by many names, an accepted definition for Socially Responsible Investing is the application of environmental, social and governance (ESG) factors when analyzing and selecting investments.
ESG analysis looks at not only traditional financial accounting for a company's performance, but also at its impact on the environment, how it hires and treats employees, how it treats customers and the community and how it's set up to govern itself.
What's the company doing to address water scarcity? How does it prevent bribery and corruption? These are some of the lenses that a portfolio manager might use when looking at the positive or negative impact of a company, in order to make the decision to invest or exclude them.
History of Socially Responsible Investing
A key start to Socially Responsible Investing in Canada was almost 50 years ago, when concerned investors spoke up about our country's investments in South Africa. A document called Investment in Oppression was published in 1973 (Canadian Churches in Good Faith, 1975, Pratt) which asked for an end to investment in South Africa due to Apartheid. Individuals asked for action, and while the change didn't happen overnight, Canadian banks eventually stopped issuing loans to South Africa.
On a global scale, the noteworthy rise of Socially Responsible Investing dates back to a document produced in 2005 by the UN under former Secretary General Kofi Annan, entitled Who Cares Wins. This was the largest collaboration of industry experts that unilaterally agreed that ESG factors are imperative to long-term success. From there, the UN established the Principals of Responsible Investing (PRI) encouraging this investment approach on a global scale.
Where we're at in Canada
Sustainable investing in Canada jumped 48% in just two years between 2018 and 2020, to $2.4 trillion in ESG assets. This shows the extent to which Canadians are interested in investments that align with their personal values.
Some analysts propose accountability and common ESG standards to help measure the actions of corporations, and to help us see which companies are taking the lead on more socially responsible decision making.
What Canadians are doing
Investors can have a positive impact, simply by having their voice heard. How they approach their overall money decisions can help them make financial decisions that better match their personal values. Here's what matters to Canadians:
1. Considering their own personal values when making investment decisions
With role models such as Greta Thunberg or victims of social injustices like George Floyd, now more than ever investors are motivated to make investments that have a positive impact. Socially Responsible Investing can provide that avenue of change. One Forbes article reported that 83% of younger investors say Socially Responsible Investment is an important priority.
2. Supporting local businesses
Not only does buying local build up communities, it's also a way to make more sustainable decisions. Purchasing items such as food that are sustainably sourced accommodates a lower carbon footprint, compared to food that depends on the global supply chain to reach supermarkets.
3. Promoting fair trade practices
8 out of 10 Canadians consider fair trade practices when making a decision as a consumer, according to an article published in 2021. These considerations include how a company treats their staff, how they structure executive pay, gender equity and whether their production methods are responsible with regard to the environment. These are a few examples of what matters to Canadians, as conscious consumers and investors.