Using a manager to invest responsibly? Here is what to look for

March 29, 2019 | Dan Rudisuela


4 quick tips to help you choose a responsible investment fund with confidence.

Starfish in the hand of a child

Responsible investing is an investment strategy that incorporates screening companies for how effectively they manage Environmental, Social and Governance (ESG) issues. I believe that companies with strong ESG practices create value, while those that do it poorly have the potential destroy it. I have adopted responsible investing in my own practice through an accreditation with RiA  (the Responsible Investment Association of Canada) and the use of Sustainaltyics, an independent research firm that evaluates the ESG performance of securities.

It is reassuring to see a growing number of responsible or sustainable solutions being offered in the marketplace. In the case of a mutual fund, the fund managers will handle the selection and ongoing monitoring of the underlying securities while you decide which fund is most appropriate for you, your goals and values. To assist in making this decision, check out this RiA post (or read on for the highlights below).

  • Understand the ESG criteria the fund managers look at in choosing companies to invest in. This could be everything from how they treat their employees to the impact of the products they make to their environmental performance. Funds evaluating the same criteria can then be compared based on the standards to which they hold the companies they invest in.
  • Decide whether negative or positive screening aligns best with your values. A negative screen will prohibit holding certain securities (tobacco, weapons, gambling are commonly screened out) while a positive screen will actively seek to invest in companies with strong ESG agendas (clean energy, diversity, water).
  • Engagement. Do the portfolio managers use their power as shareholders to effect positive change within the companies they invest in? One of my favourite examples of shareholder engagement is this group of activist investor nuns.
  • Read the fine print. All funds are required to disclose standardized information. Download the prospectus and fund facts and look for clear language identifying responsible investing as a main objective of the fund. Beware of funds marketing themselves as responsible but shying away from putting responsible goals in writing.

If you are interested in how your current portfolio holds up to ESG screening or would like to have a conversation one on one, I am available here. If you are a self-directed investor looking for some responsible investing options check out this list for some ideas.