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A New Year, A New Approach to Investing

Posted on: January 25, 2017

It’s January, 2017 and the year is still in its infancy. Each year, as we pop New Year’s Eve champagne corks, many of us think of new beginnings. We make resolutions for improving our health, maybe our career, or our relationships.  Yet somehow, with the unpredictability of a new US government, Brexit, the Syrian war, and growing populism around the world, it is easy to feel a sense of unease for what may be in store for us over the next few years.

All this negativity got us thinking.

What can we do to make things better? More specifically, as investment professionals we have the responsibility to provide advice and perspective for our clients in their quest to build their wealth. Are there investing opportunities to be had amid the doom and gloom? Are there strategies where we, as investors, can actually affect change and have a positive impact on the world? It seems like a good time to take a closer look at the concept of “Socially Responsible Investing” (SRI).

Also referred to as “Responsible Investing” (RI), or “ESG” (Environment, Social, Governance), SRI is not a new idea. It’s been around since the 1970’s, although in its earlier form it was primarily exclusionary, i.e. eliminating stocks in a portfolio that derived their revenues from guns / tobacco/ alcohol, etc. However, the gloss of a portfolio that seemed more virtuous was often offset by financial performance that was lacklustre.

Today there appears to be a new-found interest in the RI approach to investing. According to a 2015 study by the Responsible Investment Association, a Canadian organization that brings together financial institutions, advisors, mutual fund companies, asset managers, and investment research firms, RI assets grew 68% over the previous two years (much of which came from institutional investors such as pension funds, universities, and religious foundations). Whether because of the growing concerns surrounding climate change, water scarcity, supply chain issues, or the need to address large global concerns such as poverty and human rights, RI investment strategies are being used increasingly to address these needs, and are quickly becoming more mainstream.

Adding to the good news, there is growing evidence that investors need not sacrifice investment performance anymore to invest in companies that want to make a difference. In fact, it appears that paying attention to things like good governance, reducing waste, and using new technologies to solve community / global problems actually can enhance financial returns and reduce risk at the same time.
 
So, investments that not only do well, but do good too? Sign us up! In a world where serious problems dominate the news cycle, we’re going to start seeking investments, complimentary to our traditional approach, that endeavor to provide both a good rate of return as well as a positive impact on the world. It feels like the right thing to do.

We’ll be examining the many aspects of RI investing in coming blog posts. Meanwhile, are there particular environmental / social / or corporate governance issues that matter to you? Please let us know your thoughts at ginny.arnott@nbpcd.com.

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