From time to time my clients ask me about a trend that has been gaining ground over the past few years. It is a trend known as responsible investing (RI). In a nutshell, responsible investing involves factoring in environmental, social and governance considerations (ESG) into the selection and management of investments.
Increasing numbers of people are insisting that their personal values are reflected in the corporate values of the companies in which they invest – my Millennial clients are an excellent example of this – so I wanted to introduce those of you who are uninformed about, or reluctant to participate in, RI investing to a quick overview of this exciting, and growing, category.
None of this means that the Ritcey Team is beginning to turn our back on ‘traditional’ investments. We are committed to the delivery of exceptional client asset growth for all our clients, wherever and whenever we can find it. Still, RI is shrouded in a number of – particularly performance-related – misconceptions and I’d like to begin by clearing a few of them up.
Defining our terms
According to the 2016 Canadian Responsible Investment Trends Report1 published by the Responsible Investment Association, RI covers: ethical and socially responsible investing, sustainable investing, green investing, community investing, mission-based investing and, lately, impact investing.
Let’s face it. We live in a world where climate change, water scarcity and global supply chain factors increasingly underpin the context of our everyday lives. RI recognizes and reflects that reality.
Five growth factors
The 2016 Canadian Responsible Investment Trends Report discloses that the RI investment category is defined by five factors:
- $1.5 trillion in RI assets under administration
- 49% increase in two years
- RI represents 38% of the Canadian investment industry
- Individual investors’ RI assets up 91% in two years
- Pension fund assets make up 75% of RI industry’s growth, increasing by $374 billion (45%) in two years
I took a look at an analysis of comparative returns measured between January 2000 and May 2017 by the Jantzi Social Index2. This is a socially screened, market capitalization-weighted common stock index consisting of 50 Canadian companies.
Interestingly, the JSI actually outperformed – though not, it should be pointed out, by a significant margin – both the S&P/TSX Composite and the S&P/TSX60. In other words, RI investing is competitive with at least two credible, yet traditional, investment performance measures.
Decent returns while making life more decent
During my ongoing research on RI, I came across a compelling rationale for RI in an online publication called ETF Investing3. Let me quote the passage in full:
‘For investors these days, it’s not just about making a decent return; it’s about making life more decent as well. Today, more and more investors are looking to match their investments with their morals, principles, religion and beliefs than ever before. Socially responsible investing (RI) has gone from a fringe idea to a mainstream framework for finding profits with a purpose.’
As a general principle, RI investors seek out companies with a good environmental, social and governance (ESG) track records, such as having a gender-diverse board, giving back to communities and helping to protect the planet.
According to an Ipsos Reid survey performed for the Responsible Investment Association (RIA) and commissioned by OceanRock Investments Inc., Millennial investors are 65% more likely than Baby Boomers to consider ESG factors when making investment decisions
The Ritcey Team will continue to follow the world of RI investing carefully, qualified by an observant, unprejudiced eye for investment opportunities wherever they resides. My expectation is that I will report on the world of RI investments periodically, as we go forward.
Dave Ritcey, Portfolio Manager, The Ritcey Team, Scotia Wealth Management