Greenvesting

“Greenvesting” or how to invest responsibly
Nearly 500,000 people took part in the march for the climate in Montreal on Friday, September 27th, representing not only the largest event in the history of Quebec, but also the largest in the world. The scale of this mobilization demonstrates the growing expansion of today’s ecological consciousness. There are many ways to do your part for the planet and the investment sector is not excluded.
What is responsible investment?
Socially Responsible Investment (SRI) is a strategy that integrates ecological, social and corporate governance (ESG) criteria into the selection and management of investments.
In Canada, SRI has experienced a significant growth rate for several years, representing a total share of 50.6% of the Canadian investment industry. This 12.8% increase in two years represents a significant milestone in the history of responsible investment development in Canada and today, more than three quarters of Canadian investors are interested in the principles of SRI. (AIR, 2019)
How to invest responsibly?
1. Develop a responsible investment strategy
SRI does not have official standards, which implies that its definition varies from one individual to another. The idea is to develop selection criteria to identify the ETFs, funds or portfolios in which we want to invest our money. SRI criteria include, for example :
The well-being of employees;
The ecological footprint;
Diversity and inclusion;
Ethical issues (participation in the production or distribution of weapons, military equipment, alcohol or tobacco, for example).
Once the criteria have been established, several methods can be used:
 
a. Impact Investment Strategy
Selection of companies that have a positive social impact on society. These include investments in securities of companies operating in the renewable energy industry, green bonds and many others.
b. Exclusion strategy
Exclusion of all companies deriving a share of their total sales revenue from activities deemed harmful to society. These are very often ethical or environmental exclusions.
c. Integration strategy
Integration of ESG criteria to varying degrees. Companies from all industries can be found in those portfolios as we are further interested in the “best in class” of each industry and the effort made by the company to make a green or ethical turnaround.
While many of the ESG criteria are considered important to the investor, this strategy would be the best way to ensure both performance and portfolio diversification while taking ESG criteria into account. Indeed, with 25% of the TSX index being composed of oil and mining companies, it is difficult to completely exclude certain sectors without sacrificing performance. This is why the vast majority of investment funds and banks adopt this strategy rather than the first two.
2. Build your own portfolio
a. Invest in SRI ETFs
Once the selection criteria and the investment strategy have been defined, you have to choose where to invest your money.
The simplest way to invest responsibly would be to invest in ETFs made up of companies that meet social responsibility criteria. For example, the Jantzi Social Index ETF (TSE : XEN) is a Canadian index of 50 S&P/TSX Composite companies that meet specific criteria. This index excludes companies :
participating in the production of firearms and military equipment;
participating in the production of nuclear weapons;
participating in the production of tobacco or holding more than 10% of its total sales revenue in the sale or distribution of tobacco.
Other examples of ETFs to invest in the US market based on various criteria:
MSCI ACWI Low Carbon Target ETF (CRBN)
MSCI USA ESG Select ETF (KLD)
MSCI KLD 400 Social ETF (DSI)
MSCI EAFE ESG Optimized ETF (ESGD)
MSCI EM ESG Optimized ETF (ESGE)b. Select your own securities
Active management can also be integrated into your portfolio. Although it is very difficult to beat its corresponding index, many are interested in this method in order to learn the ins and outs of investment management.
By doing your own research and your own economic and financial analysis of companies, it is possible to evaluate the expected performance of a security and select companies that meet the set of SRI criteria previously established. This is the best way to invest in companies that fully meet those criteria, but the return on investment is often impacted, as it is generally very difficult to outperform the market index.

 

To date, there are no standards governing the labeling of SRI funds in Quebec, making the task all the more difficult for the investor. In Europe, a variety of labels make it easy to identify companies that respect certain SRI principles. To invest in European companies, it would be helpful to filter through these labels in order to easily identify companies of interest.

3. Opting for an investment service with SRI options

FÉRIQUE or Fonds d’épargne et de retraite des ingénieurs du Québec is a non-profit investment fund company in Canada whose purpose is to serve the interests of engineers. The company currently offers 10 mutual funds and 5 equity portfolios with all asset classes for good diversification. The FÉRIQUE funds have been following SRI principles for more than 10 years and the NPO has been a signatory of the Principles for Responsible Investment since 2011.

Another option is offered by Wealthsimple, a Canadian online investment management service offering multiple SRI portfolios for its clients. Wealthsimple builds a portfolio of ETFs that are selected according to specific criteria and returns based on the level of risk desired by the client.

Other investment funds offer SRI portfolios employing various security selection strategies. By researching the composition of these portfolios, it is possible to find a service that meets our values ​​and priorities to a certain degree.

Other examples of SRI securities and funds :
Quebec Investment Savings: Quebec Fixed-rate Green Bonds
Desjardins Group: SocieTerra Environmental Bonds Fund, SocieTerra Positive Change Fund, SocieTerra Cleantech Fund
National Bank of Canada : Sustainability Bonds
Royal Bank: RBC Vision Fossil Fuel Global Equity Fund
BMO: BMO Fossil Fuel Free Fund

SRI and performance

In addition to the social factors that benefit from the growing expansion of SRI, performance is on average also positively impacted, contrary to popular beliefs. SRI fund returns have outperformed traditional funds for several consecutive years, justifying the existence of a positive correlation between a company’s social acceptability performance and profitability. Indeed, by including SRI criteria in their business processes, companies are now able to consider risks omitted by traditional financial analysis.

Source : AiR, 2019.

Figure 1: Outperformance of the Jantzi Social Index (TSE: XEN) versus the S&P/TSX Composite and S&P/TSX 60

Breaking the myth that responsible investing and performance are mutually exclusive, SRI is a profitable and powerful way to vote with your dollar. And while past performance cannot act as a pledge for years to come, it is clear that as an investor, you have a fundamental role to play in advocating for greater corporate transparency in terms of their environmental practices, social and governance issues.

References

Finance et Investissement. (November 1 2018). Le boom de l’investissement d’impact. [Online]. From : https://www.finance-investissement.com/edition-papier/nouvelles-edition-papier/le-boom-de-linvestissement-dimpact/
La Presse +. (January 6 2019). Vos placements sont-ils verts? [Online]. From : http://mi.lapresse.ca/screens/55982e08-81c6-48eb-a7ee-46d919fba5e3__7C___0.html
Association pour l’investissement responsable. (2019). Investissement responsable (IR). [Online]. From : https://www.riacanada.ca/fr/linvestissement-responsable/
Banque Nationale du Canada. (January 14 2019). Qu’est-ce-que l’investissement responsable? [Online]. From : https://bncd.ca/astuces/strategies-d-investissement/les-cles-pour-des-investissements-responsables.html
Les affaires. (June 11 2018). L’investissement responsable occupe 50,6% des actifs sous gestion canadiens. [Online]. From : https://www.lesaffaires.com/blogues/diane-berard/l-investissement-responsable-occupe-506-des-actifs-sous-gestion-canadiens/606157
Équiterre. (2011). L’investissement socialement responsable. [Online]. From : https://equiterre.org/geste/linvestissement-socialement-responsable
Wealthsimple. (2019). Socially responsible investments. [Online]. From : https://www.wealthsimple.com/fr-ca/feature/socially-responsible-investing/
FÉRIQUE. (2019). Politique d’investissement responsable. [Online]. From : https://www.ferique.com/fr/investissement-responsable/politique-dinvestissement-responsable/

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