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November 2019

Socially Responsible Investing: Five Things You Need to Know

Interested in lining up your investments with your social values? You’re not alone: socially responsible investing is growing fast. Here’s our take on the strategy—and how to do it profitably.

Empty Nesters

Socially responsible investing (SRI) sounds pretty simple: it means putting your money to work to both benefit society and net a financial return for yourself.

From there, things can get a bit muddy, because everyone has their own idea of how to accomplish this: for some investors, it could simply mean avoiding investments in sectors like tobacco or arms manufacturing.

Others prefer a more active form of SRI known as “impact investing,” where you actively seek investments in solutions to social and environmental problems (for example, improving access to clean water in developing countries). SRI could also include investing in companies improving their own environmental, social and governance (ESG) practices.

Canadian SRI: $2.1 trillion and counting

If you’re interested in SRI, you’re not alone. In 2017, we asked BlueShore Financial clients to name the two most important things they take into account when considering an investment, and nearly one-fifth—19%—said social responsibility was one of them.

And it’s true that the amount of money being invested under SRI is growing fast: according to the 2018 Canadian Responsible Investment Trends Report, the wealth-management business was managing $2.1 trillion in SRI-focused investments as of December 31, 2017, up 41.6% from the end of 2015 and a full 312% since 2010.

It’s a similar picture south of the border, where SRI assets jumped 38%, from $8.7 trillion at the start of 2016 to $12.0 trillion at the start of 2018, according to the Forum for Sustainable and Responsible Investment.

That growth has attracted the attention of U.S. corporations: in August, the Business Roundtable, an association of CEOs of large, publicly traded firms, released a new “Statement on the Purpose of a Corporation.” For the first time, this statement put social priorities, like fair compensation for employees, dealing fairly and ethically with suppliers, and environmental protection on the same level as creating shareholder value.

The statement was signed by the CEOs of 183 major U.S. corporations, including Apple CEO Tim Cook, Ford president and CEO James P. Hackett and Visa chairman and CEO Alfred F. Kelly.

SRI: Not just for the young

But despite SRI’s rising profile, many investors still remain unaware or don’t think this category is for them. This hesitance may be due to a couple of myths, the first of which is that SRI is mainly for younger investors.

It is true that younger investors favour the strategy more than older generations: a 2016 survey by the Responsible Investment Association showed that 58% of Millennials would be interested in investments aimed specifically at solving social or economic problems, well above 35% of Gen Xers and 25% of Baby Boomers. 

But advisors see plenty of interest from older investors, too, who are looking to not only leave their beneficiaries—usually children or grandchildren—a financial legacy, but also a contribution toward a better future.

You don’t have to sacrifice financial gains

So can you really “do well by doing good”? There’s research suggesting you can.

Among that research is a 2015 study by Dr. Tessa Hebb of the Centre for Community Innovation at Carleton University in Ottawa, which looked at the performance of 47 Canadian SRI-focused equity mutual funds across four sectors (Canadian equity, US equity, international equity and global equity). The study also accounted for a range of time periods: one year, three years, five years and 10 years.

The finding? The SRI funds in question topped their benchmark 63% of the time. That’s a strong showing at a time when we regularly hear of 64% (or more) of large-cap equity mutual funds trailing the market in any given year.

SRI funds’ outperformance likely ties back to the ESG screening fund managers use to pick stocks: companies that score high on ESG factors tend to be innovative, forward-looking and have active managers and strong corporate governance—all things that typically lead to higher returns. The screening factors also tend to reduce risk which means potentially less volatility and better downside protection.

Funds are your best SRI option

SRI may sound like something you can do on your own, but evaluating a company’s ESG practices requires a lot more research and resources than most people have available: you’ll have to start by developing your own ESG screening process, based on the social or environmental goals you’re focusing on.

Then, to find appropriate stocks, you’ll have to pore over annual reports and call each company’s investor relations department to get a view of their ESG practices and how they’re meeting their goals. You’ll also have to follow up to see how these are progressing.

All of this is why for most investors it’s easier to pursue their SRI goals through a mutual fund or exchange-traded fund (ETF). In addition to convenience (and a record of strong performance, as we saw above), SRI-focused mutual funds have something individual investors can’t match: scale.

As an example, consider NEI Investments. NEI has been shaping and leading the SRI space for over 30 years. They go beyond simply screening companies and actively engage many of companies that are part of their portfolio encouraging them to adopt even more sustainable behaviours.

One example is the NEI Canadian Equity RS Fund A, which has $625.5 million in assets under management. That size and collective approach gives the fund’s managers better access to executives and opportunities to influence.

You might be pleasantly surprised that you end up owning many stocks you are familiar with through an SRI fund. For example, some funds’ screens could pick up shares of large well known Canadian corporations, as these companies are working to reduce their carbon footprint and hit other social goals within their workforces, such as greater cultural diversity or gender equality.

Start with what’s important to you

If you’re intrigued by SRI, the first step is to think about the causes you’d like to support. Then give your Credential Asset Management Inc, or Credential Securities advisor at BlueShore Financial a call to discuss your options and how much of your portfolio you’d like to see invested in those causes.

There’s no rule of thumb when it comes to portfolio weighting—some investors are 100% invested in SRI funds; others hold 25% and some just 10%. Your advisor can help you decide on the right balance and the right SRI funds to meet your social and financial goals.


Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured nor guaranteed, their values change frequently and past performance may not be repeated.

NEI Investments is a registered trademark of Northwest & Ethical Investment L.P. Northwest & Ethical Investments Inc. is a wholly-owned subsidiary of Aviso Wealth Inc. (“Aviso”).

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any insurance or other securities.

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