Socially responsible investing: you’ve got questions, we’ve got answers.

Originally published Oct 10, 2018; updated Mar 31, 2023.

Socially responsible investing (SRI) is becoming increasingly popular with Educators investors who are interested in supporting environmental, social, and corporate governance (ESG) causes.

However, many things about SRI are still unclear for a majority of investors. Here are the top questions education members have been asking about SRI, and the answers:

SRI is a form of “responsible investment”—a term which has come to encompass many types of investing. SRI focuses on how a company runs its business, not on its products. Some of the other, widely-known, types of responsible investments are:

Ethical investing: this is guided by personal morals and might involve excluding weapons, tobacco, or gambling companies from portfolios.
Thematic investing: this screens for stocks that do work for environmental sustainability.
Impact investing: this includes companies with stated social or environmental goals that can be measured.

Other variations include sustainable investing, green investing, and community investing. However, underlying all of these is a common objective: providing economic value, while displaying commitment to broader values of fairness, justice, and environmental sustainability.

No. Some say SRI started with the Quakers 100 years ago. In the 1960s, antiwar and civil rights movements opened up new fields of investment in North America. In the ’80s, sustainable fund companies were part of the movement to divest from South Africa during apartheid, and in the ’90s they worked with global retailers like Nike and The Gap to improve working conditions in their overseas factories.*

Responsible investing is one of the fastest-growing kinds of investment strategies today. About $3.2 trillion in assets are under some kind of responsible investing strategy in Canada and represents about 47% of the Canadian investment industry. According to Responsible Investment Association’s 2022 trend report, 94% of respondents are using environmental, social, and governance (ESG) integration as RI strategy.

Organizations must commit to adopting and using the six UN Principles for Responsible Investment (PRI), which provide a worldwide standard for responsible investing as it relates to ESG factors. You can find out more here.

Opinions on whether SRI produces lower returns in your portfolio vary greatly. It has been argued that the very nature of SRI—which dictates that the investor limit the choice of investments by adding criteria other than return—increases the chance of lower returns. On the other hand, many analysts suggest that companies that invest based on ESG are reducing risk factors, and hence increasing their own strength.

When determining whether SRI is right for you, it’s wise to remember two things: first, you can limit the amount of SRI in your portfolio; and second, by the very definition of SRI, financial return isn’t the only objective…the other is the satisfaction of supporting a company’s values.

Socially responsible investments are found in all major asset classes: equities, fixed income (corporate bonds, green bonds, etc.), money market and alternatives such as impact investments. Investment vehicles include mutual funds, private equity funds, ETFs, pooled funds, real estate funds, and hedge funds.

Choosing socially responsible investments for your portfolio is very similar to how you would choose your other investments. The first step is to meet with a Financial Advisor to discuss your goals, and how long you want to invest. Part of that discussion will be your investment time horizon and other preferences you have as an investor—including your preference for socially responsible investments.

An Educators Financial Advisor will recommend investments that satisfy your desire for SRI.

Educators offers SRI options in the Canadian and Global Equities space, as well as Canadian Fixed Income category. Our Money Market and Monthly Income Funds also qualify. Beyond our SRI offering, the screening process for all of our funds (and fund managers) is very rigorous. We monitor for such things as performance and value (for the fee) to ensure our clients are getting a diverse portfolio of quality investment options that meet their specific financial objectives. Beyond providing SRI options, we work hard to ensure the majority of the funds we offer fall within the six key PRIs.

Sources:
https://www.theglobeandmail.com/globe-investor/confused-by-ethical-investing-heres-a-primer/article34332548/
*http://blog.fundx.com/blog/2017/04/19/5-frequently-asked-questions-sustainable-investing/
https://www.nasdaq.com/article/socially-responsible-investing-risk-and-return-cm899194

https://www.riacanada.ca/research/2020-canadian-ri-trends-report/