Creative commentary plus crafty composition

The Responsible Investor


When I was a financial consultant, the appeal of socially responsible investing was important to some clients, but not many.  Our company’s family offering was relatively successful in gathering assets, especially relative to competitors, although returns were rather volatile, given funds’ equity-based exposure, including international holdings in newly emerging sectors.  However, I was told repeatedly by clients that they were not enthralled with exposure to such restricted, partly speculative, mandates.

An article in last month’s Investment & Insurance Journal terms this market, now under the ID umbrella of ESG (environmental, social, and governance) funds, as ‘underserved’.

It notes that a number of investment management firms now offer ESG funds.

Here are some pertinent points and comments (including from the CEO of the Responsible Investment Association of Canada, or RIA):

  • The Canadian ESG market has approximately $1 trillion in AUM (assets under management)
  • Just over 30% of Canadian investors have ESG holdings, primarily women and younger people
  • Contributors to asset growth come from increased awareness by investors of ESG issues plus increasing participation by mutual fund institutions
  • ESG funds “evaluate companies based on their actions regarding issues such as climate change, water scarcity, executive pay, board diversity and inclusiveness of minorities”
  • According to a recent study, over 90% of individual investors would like to consider having ESG holdings, but only about 10% of advisors recommend them ( comment: further to my note above, in my two decades and change of offering an early version of such Funds, the proportion of interest was markedly lower than it apparently is today); therefore, ESG represents “an underserved part of the market”
  • Part of what is helping spark interest from the advisor and industry side is the spectre of issues such as green-house gas emissions; one institution in Montreal has pledged “to measure and disclose the carbon footprints of investment portfolios”, in turn impacting investing decisions
  • The responsible investing industry would like to see regulators push companies to be ‘more transparent’ about potential ESG risks; some efforts have been seen affecting issuers on the S&P/TSX index
  • Those concerned with long-term portfolio performance should also be concerned with ESG issues, especially since there is ‘a mountain of evidence’ that such investments have been providing returns comparable to traditional investments

There’s much to like about the concept of ESG investing.  However, like all sectors, it should be considered as a potential portion of one’s overall portfolio.

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