There has been growing interests in responsible investments, however, one of the challenges is not knowing where to start. Are you too busy to conduct the research but are still interested in learning more about the latest in investing in a cause you care about? Then this is a guide for you - busy professionals with a stakeholder mindset.  

 

For starters, there are three main types of responsible investments

 

Environmental Social and Governance Integration

 

Under this methodology, every company is ranked on an ESG spectrum and there is no exclusion of companies or sectors under this approach, rather it encourages investors to play an active role in helping companies transition, incorporate and elevate their overall scores under Environmental , Social and Governance standards.

 

This is my personal favourite because it allows for a transition plan for companies to become better corporate citizens while taking in the existing reality of their current operating environment.

 Just a few examples to consider:

 

·      Supply side changes from the fossil fuel industry: many oil and gas companies have invested in renewable energies as part of their plan to reduce carbon emission. BP for example announced its plan to cut oil production by 40 per cent and increase renewable power generation 20-fold by 2030.

 

·      Demand side changes drive faster adoption of clean energy: tech companies such as Google, Microsoft and Facebook have become the world’s biggest corporate purchasers of clean energy. This is significant because tech companies are big consumers of electricity due to the energy demand from their data centres. The combined electricity consumptions of this tech group can rival a stand-alone country.

 

Tech groups are the biggest corporate buyers of green energy

Global cumulative offsite power purchase agreements, 2000 to present (MW DC)

Source:  Bloomberg NEF, FT

 

·      Institutional investors bring about changes in board diversity: many institutional investors have become more vocal in leveraging their voting power to bring about changes they want to see. While board seats do not come up for election very often, our own ESG team have success stories to share where they have brought about more gender diversity by actively advocating and working with the company management team. The traditional Canadian modesty may have held back shareholder activism but having an ESG framework as part of the investment mandate certainly helps to encourage investors big or small to play a more active role.

 

Socially Responsible Investing

 

This methodology excludes certain companies and sectors such as the ‘sin’ sectors - adult entertainment, alcohol, gambling, arms, cannabis and tobacco. This is suitable for investors that are passionately about a subset of the investment universe and are willing to ‘boycott’ at all costs.

 

Impact/Thematic Investing

In contrast to ESG which has broader focus, thematic or impact investing focuses on a specific theme which investors are passionate about and want to bring about changes in by providing capital. Green energy investing for example can fall under thematic investing and investors have been rewarded handsomely for it. Solar, wind and batter electricity systems are now cost competitive with coal, natural gas and nuclear power incumbents.

 

What are your responsible investments ambitions?