What and why.
Socially responsible investments comes in all shapes, sizes, and risk levels. They could be term deposits, ETFs, mutual funds*, or come in other forms. What they all share in common is attention to what your money is ultimately funding in terms of financial performance and its impact on our world.
Think of it this way, when fund managers invest in a company, they’re likely thinking about things like:
- Are they profitable now and tomorrow?
- Do they address rising costs and innovation?
- Do they have good management?
Socially responsible investing believes profitable companies in the long run are ones who address questions like the above with practices that align with human and environmental sustainability. Some examples could be:
- Costs and longevity is addressed by using resources and processes that are renewable or don’t accelerate the use of non-renewable ones
- Good management is seen in fair and equitable treatment of employees leading to retention and expertise
- Profitability through happier end-users, policy-makers and neighbours because they’ve considered pollution both in their manufacturing and the overall lifecycle of their product, they have more time and money to focus on growing the company
The data speaks for itself when it comes to this way of thinking about what makes profitable investments:
Sustainable funds outperformed their traditional peers in 2023 and saw returns of 12.6%.
Source: Morgan Stanley Institute of Sustainable Investing
Types and approaches.
At Vancity, our specialists offer a wide range of responsible ETFs and mutual funds*. Responsible investments may use some or all of the methods to add a human and environmental lens to their offering.
Here are some fund approaches and what they mean:
ESG integration and evaluation.
The fund uses Environmental, Social and Governance (ESG) criteria as an essential component of the evaluation method for security selection alongside traditional financial factors, such that all securities in a portfolio have been evaluated based on ESG factors and the ESG factors are significant and influential in the buying and selling of securities in the portfolio.
Environmental
How does a company act as a steward for the natural environment?
- Environmental impacts
- Sustainable products
- Resource depletion
- Waste & pollution
Social
How does a company treat both people inside and outside the company?
- Equity and diversity
- Human rights
- Employee relations & engagement
- Community Relations
Governance
How does a company govern itself?
- Executive pay
- Board Diversity
- Bribery & corruption
- Political lobbying
Negative and/or positive screening.
Negative screening
The fund has specific sectors, industries, materials, or companies that will be excluded from the investible universe (what may potentially be added to the fund) based on ESG criteria or other specific ethical considerations.
For example, a fund’s policy may be to not include securities issued by companies or governments that receive revenue from the sale or production of excluded materials or operate in excluded sectors or industries.
Vancity Investment Management managed IA Clarington Inhance SRI Funds and pooled funds don’t invest in fossil fuels, military weapons, tobacco, nuclear power, adult entertainment or gambling.
Positive screening
Also referred to as ESG Best in Class, these funds generally invest in securities that meet specified criteria related to ESG factors. The criteria usually include thresholds related to ESG performance or scoring on ESG factors where only securities that meet the selected thresholds are considered for investment.
Thematic investing.
Thematic funds generally identify disruptive themes and seek to invest in companies that stand to benefit from them through products and services. ESG Thematic funds have a specific focus on themes that fit into one or more of the Environmental, Social or Governance buckets but does not focus on all the elements of the ESG spectrum.
For example, this includes funds with a particular
environmental focus that evaluate companies based on environmental factors. The ESG Theme must be the primary evaluation method for security selection, such that at the overall portfolio level, the degree to which the theme is integrated is well documented and measurable.
Impact investing.
Impact investment funds invest in companies or projects that intend to have a measurable positive environmental and or social impact as well as the intent to generate a positive financial return. Funds must have a stated impact measurement and management policy.
Shareholder engagement.
The fund’s managers use the fund’s position of ownership to influence the company to make decisions that increase the company’s positive impact on the ESG factors.
This can include collaborative efforts with peers and/or informing the board and management of specific ESG issues. Recommendations may be brought up to be voted on by shareholders at company annual general meetings.
Vancity Investment Management documents their engagements every year in their impact report.
