23 March, 2022 Financial Planning Investment Services Special Reports and Newsletters Total Client Experience

How To Support The Environment While Making a Profit

These days, with all that’s going on in the world, more and more investors are choosing to support corporations and businesses based on ethical considerations — not just on profit and growth potential.

Historically speaking, most fund and asset managers focused on money, which makes sense since protecting and creating wealth is the ultimate goal of investing. 

But investors are becoming increasingly uncomfortable supporting corporations whose values and ethics are not in alignment with their own or society as a whole — and they’re looking for investment opportunities where they can still achieve growth while making a contribution to help solve some of the world’s problems (or at least not make them worse).

That’s where SRIs come in.

 

What is an SRI?

SRIs (socially responsible investments) are investments that move beyond making investment decisions based solely on traditional financial factors like earnings, balance sheets and cash flow — to consider environmental, social and governance (ESG) factors around a company’s operations too.

The goal of ethical investing is to deliver more value for investors while providing a positive impact for ALL stakeholders, including employees, communities and the planet itself.

But it’s not as clear-cut as it seems.

 

Who decides what is ethical?

What’s considered ethical is subjective and can vary from individual to individual.  Most SRI portfolios contain a mixture of stocks and bonds that meet the ethical standards commonly held by the majority of Canadians.

For example, most people prefer not to invest in companies that:

  • Support liquor, tobacco and gambling
  • Support military activities
  • Have labour practices that are not inclusive
  • Support repressive regimes 
  • Are not environmentally responsible

At Bick Advisors, we approach SRIs cautiously, as there are lots of different definitions and we prefer to diversify the ESG/SRI thinking — as no one way of thinking is ever 100% correct. 

To help identify ethical investments, investors are increasingly applying non-financial ESG factors as part of their analysis process.

 

What are ESG factors?

Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations.  Socially conscious investors use these factors to screen potential investments.

The environmental criteria consider how a company impacts nature. It factors in the energy a company uses, the waste it discharges, the resources it consumes and the consequences for all living beings as a result of their industry — such as climate change and carbon emissions. 

The social criteria address the relationships and reputation a company has with people and institutions in the communities where they do business. This includes labor relations, diversity and inclusion. 

Governance is the internal system of practices, controls, and procedures a company adopts in order to govern itself, make effective decisions, comply with the law, and meet the needs of external stakeholders. Every company, which is itself a legal entity, requires some form of governance (leadership).

These criteria serve as guidelines to help investors weed out the worst offenders, but it’s not 100% foolproof. 

There can be a lack of consensus about which companies get the “green” light and which ones are labeled as “do not invest” and sometimes it just comes down to a question of degree. Is it okay for a “good” company to receive 5% of its income from military contracts, for instance? How about 10%? 50%?

You just have to know where to draw the line.

 

Making an impact 

There is a further trend in SRIs too — impact investing. 

Rather than just avoiding certain investments that are detrimental to the planet, these investments look to generate a positive, measurable social and environmental impact alongside a financial return. 

This type of investing rewards environmentally and socially responsible companies while putting pressure on those who are not — but this is where it gets tricky.

Do the banks’ lending to energy (oil and gas being a big part) provide a needed role in the Canadian economy, or are they just ‘dirty’? 

And which company is the most efficient and has the best social awareness — the wind farm that is run by a small board of directors (putting many people out of jobs) or the coal company? With many countries and communities still relying on coal, is it prudent or ethical to completely cut these companies off from access to money?  

Investing is complicated, so it’s important to make careful and informed decisions.

 

Is SRI for you?

There are two inherent goals of socially responsible investing: social impact and financial gain. 

While one doesn’t necessarily ensure the other (just because an investment is good for the environment doesn’t mean it will be profitable and vice versa) it does make the investments you have feel more aligned with your values and could contribute to positive change. 

If you’d like to learn more about SRI investing, schedule a meeting with one of our advisors. We’ll help you achieve your own financial goals while making the world a better place.