Socially responsible investments have taken centre stage: Impacts of COVID-19
Ethical investing allows you to support companies that take a socially responsible approach to their operations. While the concept isn’t new, the opportunities for aligning with businesses that share your values have never been higher. And because of COVID-19, the demand for socially responsible investments has also risen dramatically.
Here are a few things to consider when growing your wealth as part of a balanced portfolio that includes responsible and ethical investments.
Making an impact with your choices
Generally, there are three main factors at play when it comes to responsible investing (RI): Environment, Social and Governance (ESG).
- Environment refers to things such as a business mitigating climate impact or improving supply chain efficiency.
- Social can include better labour practices or more employee support.
- Governance includes board diversity or compensation parity.
In the past, investors would use an exclusionary strategy to guide their portfolio. This would include removing industries like mining or energy because they don’t align with a personal worldview.
Now, investors are looking towards inclusionary signals such as positive corporate decisions and using impact metrics to understand the outcomes these actions have realized. This shift is holding companies more accountable and resulting in a larger push towards socially responsible practices.
Responsible investors are forcing a shift in corporate values
According to Jesse Funk, an ACU and Credential Asset Management Inc. Wealth Advisor who is also certified as a Responsible Investment Specialist, this shift in individual’s thinking and values are having an impact on the market.
“Our members appreciate knowing that our partner money management firms, such as NEI Investments, engage directly with companies using their power and resources to impact change where necessary on behalf of the investor.”
For leading firms in responsible investing such as NEI Investments, it is now a high expectation that they engage directly with corporate businesses. Now in this increasing socially responsible world, the average investor is feeling more involved in asking questions about the ethics and operations of companies in which they invest,
“People are asking if companies in high carbon industries are able and willing to transition to a greener future. They want to know how companies are handling the health and safety of employees, including mental health. In addition, investors are asking how human rights including privacy, data collection and freedoms of expression are going to be affected in this increasingly digital age,” Jesse expands.
As expected, investors want to be assured that corporations will be able to withstand economic downturns in the future. But when it comes to aligning with personal values, “Ultimately, investors want to know that corporations are sustainable going forward.”
The rise of socially responsible investments during COVID-19
Analysts assumed that RI might have taken a back seat during COVID-19, with investors and companies shifting their focus toward short-term gains. However, the opposite happened.
Over the past two years, ethical investing has seen a 12% increase in Canada’s investment industry and in August 2020, ESG funds exceeded $1 trillion in global capital inflows for the first time. Stakeholders are placing a greater focus on transparency and accountability from corporations, with a focus on environmental and social issues.
As a whole, ESG funds did better in the market than their counterparts during the early days of the COVID-19 due to being more secure, long-term investments. “There appears to be a stronger interest in socially responsible investments since the pandemic took root,” Jesse explains. “At the branch level at ACU, we’re seeing that investing with values in mind was not abandoned, but rather, was put more in focus throughout this past year. There is a lot of focus on environmental and social issues especially.”
In fact, according to Principles for Responsible Investing, the world’s leading proponent of responsible investment, there was more inflow in the first half of 2020 than the entire year before. This trend will only continue to grow as more ethical options come to market and corporations change the way they operate to fit into a RI framework.
Aligning personal values with market growth
Over the past year, movements such as #BlackLivesMatter and the shift toward a remote workforce have opened a larger dialogue about diversity and what the future of work looks like. These social issues have re-prioritized investment outlooks and it’s becoming increasingly clear that businesses have a greater societal role to play.
Choosing between performance and people isn’t mutually exclusive, and investors are looking for more disclosures around how companies support their employees and structure their operations.
Moving forward, businesses looking to transition to more sustainable practices are more likely to access capital, ultimately helping them to become more profitable. This means that investment options in less desirable industries could make it off your exclusion list because of the moves they’re taking to invest in clean technology or restructure their operations.
A socially responsible investment strategy built around you
If you’re a younger investor, you’re in good company. By 2040, Millennials are set to acquire over $30 trillion as Baby Boomers transfer their wealth to the next generation. This audience is more focused on corporate social responsibility and are driving growth in this category.
That means stakeholders will continue to weigh a variety of factors, in addition to market performance, when choosing an investment. Ultimately, this will help to grow the market and reward companies that prioritize ESG issues.
When you’re ready to get started, the best way to ensure your investments are ethical is to partner with a financial advisor that has an official designation through Canada’s Responsible Investing Association (RIA). As a Responsible Investment Specialist, they can walk you through the steps you need to take to build a responsible portfolio, and they can work with you to find a suitable values-focused solution.
Understanding the tactics employed by money management firms and institutions, especially when it comes to corporate engagement to impact change, will help you to feel more confident that your socially responsible investments are making a difference.
Building a better future and portfolio
For ACU members, RI aligns with our credit union values. As Jesse explains, “ACU has a strong emphasis on creating a positive influence for our members and communities from both a financial and well-being standpoint, including our products, services and the community programs we help fund. This resonates with our members who want to invest in the market in a way that aligns with their values and the issues they care about.”
For Jesse and the ACU Wealth team, having a RI designation through the RIA adds another layer of expertise for members. “As a RI designated Credential advisor, we have access to a wide reach of responsible investing resources, and we understand the vast array of options available.”
“We also have a deep understanding of the ESG issues important to our members, and we know the tactics employed by money management firms to build a responsible portfolio. We use these tools to help our member investors find a solution they can feel good about to grow their money over time while feeling good about the positive impact they are contributing towards society.”
Ethical investing in Canada is a solid, socially conscious opportunity that continues to grow, both in popularity and profitability. However, it’s important to remember that small changes add up over time. If you have a longer outlook on your golden years and want the choices you make today to have an impact tomorrow, then ethical investing is a good way to build a better world and portfolio for the future.
At ACU, we believe in people, planet and prosperity, and we are happy to work with you to ensure your investments align with your own values. Further, all of our advisors are RI qualified, giving you the assurance that anyone you’re working with will understand this investment approach. Our advisors offer a carefully reviewed portfolio of socially responsible investment products that are in harmony both financially and ethically, together with a deep understanding of the markets.
Book an appointment with an ACU financial advisor to learn more about socially responsible investments, so your money can do more — with your values in mind.
Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc.
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