BMO Nesbitt Burns
885 West Georgia Street
Socially Responsible Investing
1. Deliver similar or greater returns while upholding ESG values. One 2019 study2 comparing the total returns of ESG-focused funds against traditional counterparts from 2004 to 2018 found no financial trade-off when investing in ESG factored funds. In fact, there was evidence of their comparative stability. Canadian data reflects this, with 74% of sustainable funds in Canada outperforming their peers in the volatile first half of 2020. And investors are aware of this, 53% of those asked cited better performance as a driving factor in their choice to pursue sustainable investing.
2. Changing government sentiment. As the newly-elected leader of the world’s largest economic power, U.S. President Joe Biden’s proposed environmental approach may signal a boost to the sector. He’s stated his commitment to re-joining the Paris Agreement, a target of decarbonization of the power sector by 2035, and a goal to adopt net-zero greenhouse gas emissions by 2050. With China, the world's second-largest economic power and worst emissions offender, also pledging to adopt a net-zero plan for 2060, we see a significant shift in global commitment to the reversal of climate change. Governments are getting serious about supporting a greener direction and public policy will drive ESG investing success.
3. Risk management. While ESG factors are often tied to ideas of good citizenship or environmental advocacy, sustainable investing can also be used as a risk-management tool. Well-managed companies don’t tend to fall victim to boycotts, public relations problems, or a failure to plan for a changing economy. Think of a car company that neglects to prepare for the future low-carbon market or a business that fails to ensure its workers' safety and security. One study has shown that by screening out companies with low environmental and social scores, investors could have avoided 9 out of 10 bankruptcies in the S&P 500 between 2005 and 2015.
4. Supporting sustainability. With the growing awareness of environmental and human rights issues, many people are making choices with the hope of creating change. Some two-thirds of high-net-worth millennials surveyed in the United States saw their investment decisions as a way to express their social, political, or environmental values. More than one-third of high-net-worth baby boomers echoed the same idea. There is a marked interest in sustainable investing and the potential it has to effect change, and investors are rewarding forward-thinking businesses with their investment dollars.
5. Sustainable investing is the future. ESG investments are enjoying a global moment, but it’s one that seems poised to continue. In the United States, sustainably focused investments have doubled over the past three years. Canada saw growth as well, with 2020 first quarter inflows outpacing the whole of 2019. More and more investors are insisting on investments that allow them to put their money where their values are, and with so much choice available, it's entirely possible to build a portfolio that’s both profitable and ethically aligned.