How do I… responsibly invest

In recent years, with issues like climate change dominating the headlines, many of us have wondered if we can truly make a positive impact. The answer is a resounding yes, and it goes beyond traditional means like volunteering or reducing our carbon footprint – although those are great strategies too and we do both at Gulf & Fraser.

One of the most powerful tools at our disposal is known as socially responsible investing. This form of investment not only has the potential to grow our wealth but also drive important positive change. Let's delve into how it all works and answer your frequently asked questions.

What exactly is socially responsible investing?

At its core, socially responsible investing (SRI) is much like traditional investing. It considers all the standard financial criteria for choosing an investment (revenue, balance sheets, etc.) and aims to give you strong portfolio growth.

The difference is that SRI includes an extra step in its assessment. It evaluates potential investments based on their positive impact as well. What does this mean? In order to responsibly invest your money, SRI will look at a company’s environmental, social, and governance (ESG) practices to see what kind of influence they have on the world:

Environmental

This evaluates a company's environmental responsibility. It includes factors like waste management, air and water pollution, greenhouse gas emissions, and deforestation levels.

Social

This focuses on how a company treats its employees, clients, and community. It covers working conditions, human rights, community support, and customer relationships.

Governance

This assesses whether a company's structure is fair and sustainable. It examines aspects such as executive and employee pay, tax strategy, political lobbying, and leadership selection.

What are the “Principles for Responsible Investment?"

As you look into socially responsible investing, you may come across this term a lot. But what are the “Principles for Responsible Investment?" Launched in 2006 with support from the United Nations, these are six guiding principles organizations pledge to follow when investing. They are:

Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
Principle 6: We will each report on our activities and progress towards implementing the Principles.

When you work with an organization that follows these core principles, you can be sure that they will help you responsibly invest your money.

Is socially responsible investing effective?

The short answer to this question is yes. Many studies have shown a strong connection between a company’s business practices and its overall performance. Those with high ESG ratings tend to outperform the market long-term.

That’s because socially responsible investing accounts for real-world risks and a company’s broader impact, as well as its financial performance. This results in what many consider a more informed, comprehensive investment assessment. But how exactly does that ensure better investment decisions and portfolio performance? Let’s look at an example to help break it down:

A clothing brand has strong financial performance. Looking at these metrics alone, it seems a good investment. However, a deeper ESG analysis reveals poor safety conditions at its factories. This creates a big risk to the value of the investment if an accident happens:

Production shutdown
Supply chain disruption
Reputation damage
Lawsuits

By being a responsible investor and considering ESG factors, you identify these risks early, protecting your portfolio from volatility.

How does socially responsible investing create positive impact?

Socially responsible investing creates more than just investment growth. It can drive genuine change in the world of business. To responsibly invest, you put money into an SRI fund with a large group of other like-minded investors. Together, this gives you a powerful, collective voice and financial influence companies can’t ignore.

Here are some key ways this helps empower positive change:

Financial support: Companies pay attention to what affects their bottom line. By choosing to responsibly invest, you signal that ethical and sustainable business practices are essential to getting support. This influences their decisions and direction. It also ensures companies that align with your values have the backing they need to grow.
Shareholder influence: Shareholders have influence, and companies take their views seriously. When you choose to responsibly invest, your SRI provider can engage with the company's leadership on your behalf. Using various methods like emails, phone calls, and meetings, they draw attention to ESG issues and push for improvements.
Voting rights: Your power extends to voting at shareholder meetings. Your SRI provider can also vote on your behalf, supporting proposals that encourage ESG improvements and blocking those that don't. What’s more, they can introduce ESG shareholder resolutions that foster even more change.
Impact on policy: Responsible investors' collective voice doesn't just affect corporate strategies. It can also push governments and regulators to create policies that promote greater industry adoption of ESG practices.

So, in sum, being a responsible investor doesn't mean sacrificing portfolio performance. In fact, socially responsible investing offers a more nuanced view of your investment options, protecting your portfolio from risks traditional analysis may overlook. Plus, it empowers the changes you want to see in the world.

Curious if socially responsible investing is right for you?

Sit down for a chat with one of our accredited advisors. They can help determine if responsible investments align with your portfolio goals.

Book a chat, opens in a new tab

Select Image

Get advice on the go

Life gets busy, but don't let that stop you achieving your goals. Whether you’ve got $50 or $50,000, we want to help power your possible – and we'll come to you to do it.

Learn more

Select Image

Let’s keep boosting your investing know-how

Try our investment calculators

Our handy calculators help you figure out which solutions make the most sense for your investing goals.

Start planning

Get more tips

_{*Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds and other securities.}

_{Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, cash balances, mutual funds and other securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. There can be no assurances that the money market fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Mutual funds and other securities are not guaranteed, their values change frequently and past performance may not be repeated.}