Guide to socially responsible investing - MoneySense (2024)

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By Bruce Sellery on August 27, 2012
Estimated reading time: 4 minutes

By Bruce Sellery on August 27, 2012
Estimated reading time: 4 minutes

Bruce Sellery says ethics and money can go hand-in-hand, so long as you don’t sacrifice returns by doing so.

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Question

My husband and I want to take more control of our investments. We want to invest in ethical and local companies, but we are having trouble finding them. We want to know if there are any resources that will help us identify which Canadian funds or stocks to invest in and help us determine if they are ethical (which, we know, is a large, broad term, but one we feel we have our own definition for). Can you help?

Answer

It turns out that you can have your vegan cake and eat it too. Investing in a way that is both ethical and profitable is possible—it just takes more work. But you’re probably used to that if social consciousness is a priority in other areas of your life already. Here are some tips on the work you need to do to invest in a way that will pay off for you and for the world we live in.

Do research on socially responsible investing

There are a number of great resources and investment products that cater to socially responsible investing for Canadian investors. Here are a few places to start your search:

  • Sustainalytics, now merged with Janzi Research, provides research on companies and countries and you’ll be able to learn about its approach to see if it is consistent with yours.
  • The Social Investment Organization is the national non-profit association for socially responsible investing (SRI). It’s website has information on SRI funds and lists financial advisers who utilize this approach.
  • Corporate Knights is a magazine that bills itself as the “company for clean capitalism.” Its website archives articles that cover the best and worst ideas in SRI, including special reports on cities, provinces and corporate citizens.
  • SRI Monitor focuses on news in the socially responsible investing arena. It uses a simple blog format, aggregating articles from a number of sources, and providing original content.
  • Some mutual fund companies offer specific products that might work for you. For example, Ethical Funds, Phillips, Hager & North, and IA Clarington all have ethical offerings. Some of these products are available for purchase through a discount broker and others require you to use a financial adviser.
  • One of the more interesting products out there is the Janzi Social Index Fund, from iShares. It is an exchange traded fund that passively follows the performance of an index and costs less than a traditional mutual fund.

For any of the products above you should look at the prospectus to see if the companies they hold fit your definition of socially responsible. You can find this information on the fund company’s websites or on Sedar.com. There will likely be a few that will have you debating into the night, like pipeline operator Enbridge. It is in the Janzi Fund, but recently received a thumbs down from B.C.’s largest credit union, Vancity.

Don’t sacrifice investment returns

Remember when environmental cleaning products first came out? You felt good buying them because you were doing the right thing for the environment, but the product itself was more expensive and inferior in quality. For a lot of people the trade-off was too great, until the product improved and the price came down.

Financial products that enable the average person to invest in a way that is consistent with their values have also improved and come down in price. But it is critical to be aware of the trade-offs.

For example, take the Ethical Growth fund. It has underperformed its benchmark index since its inception. If you invested $100,000 in this fund in January of 2000, you would have $129,620 today. But if you put that same amount into the S&P/TSX index you would have $189,050 today, a whopping 46% or $60,000 difference. That trade-off is much more significant than using crappy cleaning products in the early 90s.

This is where the “more work” comes in. Most people just analyze the investment to decide for themselves if it will give them the returns they seek. You have the added challenge of determining whether it is also socially responsible. The key thing is to judge the company or fund as an investment first and not get so enamoured by its environmental record that you can’t see it is over-priced.

Cover off the basics, first

I applaud your commitment to investing in a way that is consistent with your values. But remember the basics about investing in general.

  • Manage your asset allocation carefully: Ensure the balance between equity and fixed income fits with your risk tolerance and what the money is for. For instance, you don’t want your RESP to be 100% in equities when your child is 16-years-old.
  • Keep a close eye on costs: High fees can eat more of your portfolio than underperforming markets. Understand how much you’re paying and whether it is worth it.
  • Keep it simple: A super simple, low-cost portfolio that matches the performance of the benchmark will put you ahead of almost everyone else.

Become an activist investor

One more suggestion that is contrarian in nature: Buy a few shares in companies that you believe represent the antithesis of socially responsible investing. Then show up at their Annual General Meetings and ask some really tough questions. Sometimes the best way to make change happen is from the inside. And besides it would be kinda fun.

Guide to socially responsible investing - MoneySense (3)

About Bruce Sellery

Bruce Sellery is the CEO of Credit Canada, the country’s longest-standing non-profit credit counselling agency. He is a former MoneySense columnist.

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I am an expert and enthusiast assistant. I have access to a wide range of information and can provide insights on various topics. Now, let's dive into the concepts mentioned in the article you provided.

Ethical Investing

The article discusses the concept of ethical investing, which involves investing in companies or funds that align with one's values and have a positive impact on society or the environment. It emphasizes the idea that ethical investing doesn't necessarily mean sacrificing returns. The article suggests that with proper research and due diligence, it is possible to invest in a way that is both ethical and profitable.

Socially Responsible Investing (SRI)

Socially responsible investing (SRI) is a strategy that considers both financial return and social/environmental impact when making investment decisions. The article mentions several resources and investment products that cater to socially responsible investing for Canadian investors. These resources can help individuals identify and evaluate companies or funds that align with their definition of socially responsible investing.

Resources for Ethical Investing in Canada

The article provides a list of resources that can help individuals identify ethical investment opportunities in Canada. These resources include:

  1. Sustainalytics: Sustainalytics, now merged with Janzi Research, provides research on companies and countries, allowing investors to assess their approach and determine if it aligns with their values.
  2. The Social Investment Organization: The Social Investment Organization is a national non-profit association for socially responsible investing. Their website provides information on SRI funds and lists financial advisers who utilize this approach.
  3. Corporate Knights: Corporate Knights is a magazine that focuses on clean capitalism. Their website archives articles covering the best and worst ideas in SRI, including special reports on cities, provinces, and corporate citizens.
  4. SRI Monitor: SRI Monitor is a blog that aggregates articles from various sources and provides original content related to socially responsible investing.
  5. Mutual Fund Companies: Some mutual fund companies, such as Ethical Funds, Phillips, Hager & North, and IA Clarington, offer specific products that cater to ethical investing. These products may be available for purchase through a discount broker or require the assistance of a financial adviser.
  6. Janzi Social Index Fund: The Janzi Social Index Fund, from iShares, is an exchange-traded fund (ETF) that passively follows the performance of an index. It is a lower-cost alternative to traditional mutual funds.

Evaluating Ethical Investments

When considering ethical investments, it is important to evaluate the companies or funds to ensure they align with one's definition of socially responsible. The article suggests reviewing the prospectus of the investment products to understand the companies they hold. This information can typically be found on the fund company's websites or on Sedar.com, which is a Canadian securities database.

Balancing Investment Returns and Ethical Considerations

The article highlights the importance of not sacrificing investment returns when pursuing ethical investments. It compares the performance of the Ethical Growth fund to the S&P/TSX index, demonstrating that the Ethical Growth fund underperformed its benchmark index. This example emphasizes the need to analyze investments based on their financial merits first and then consider their social responsibility aspects.

General Investment Tips

The article also provides some general investment tips that apply to both ethical and traditional investing:

  1. Manage Asset Allocation: Ensure that the balance between equity and fixed income investments aligns with your risk tolerance and investment goals.
  2. Monitor Costs: Keep a close eye on investment costs, as high fees can eat into your portfolio's returns. Understand the fees you are paying and evaluate whether they are worth it.
  3. Keep it Simple: Consider building a super simple, low-cost portfolio that matches the performance of a benchmark index. This approach can often outperform more complex strategies.

Becoming an Activist Investor

The article suggests a contrarian approach to making change happen by buying shares in companies that are considered the antithesis of socially responsible investing. By attending their Annual General Meetings and asking tough questions, individuals can potentially influence these companies from within.

I hope this information helps you understand the concepts discussed in the article. If you have any further questions or need more information, feel free to ask!

Guide to socially responsible investing - MoneySense (2024)
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