It’s changing the way we invest. Here’s how and why.

 

Responsible investment (RI) has been around in one form or another for over 30 years. But interest has boomed in recent years. Climate change, corruption, cyber security and a lack of gender diversity in companies are some of the concerns that have prompted many of us to think about changing the way we live our lives and how we invest. In fact, data shows that more than US$30.7 trillion was invested in RI around the world at the start of 2018. That's a 34 percent increase in two years. And in Canada, half of all professionally managed money is in responsible investments. (1)

 

So what is responsible investing ?

 

RI can be used as an umbrella term to three distinct investment strategies.

 

1. Environment Social Governance integration ( ESG )

 

In investing, not everything that counts can be counted. With ESG integration, investors consider more than traditional financial measures. They consider the intangibles of a company's environmental, social and governance (ESG) practices. This approach has the potential to add value by enhancing long-term performance for investors.

 

Examples of ESG factors :

2. Socially responsible investing (SRI)

 

This is what is sometimes referred to as investing in line with your values. Investors screen companies in or out of a portfolio based on set criteria. Today, more than US$19 trillion in assets around the world are invested into dedicated SRI strategies. That's up more than 30% since 2016. ( 2 ) 

 

3. Impact investing

 

Here the focus is on investing in companies and projects that intend to generate a measurable positive social or environmental impact – alongside a financial return. For example, an investor seeking returns could invest their capital in a project that assists underserved communities through support for low- and moderate-income home buyers, affordable rental housing units, small business administration loans and economic development.

 

Responsible investment is trending

 

Of all the generations of investors, young people are at the forefront of RI, according to a recent report by the Responsible Investment Association. ( 3 ) This trend signals a bright future for responsible investment. Millennials’ incomes are rising. And, they are poised to inherit US$30 trillion in the decades ahead. As they invest that wealth, they will likely fuel the growth of RI.

 

 

(1 ) Global Sustainable Investment Alliance, Global Sustainable Investment Review, 2018
( 2 ) Global Sustainable Investment Alliance, Global Sustainable Investment Review, 2018
( 3 ) Responsible Investment Association, Investor Opinion Survey, 2019