Responsible investing is on the rise
Fifteen years ago, the United Nations conducted an impact study that defined criteria for ESG (environmental, social and governance) investments. The United Nations created organizations to assign an ESG rating to an investment. These organizations do not always agree on the rating. For example, Tesla is ranked first by some and last by others.
The rating is based on a judgment that is fundamentally qualitative," said Ben Johnson, Morningstar's director of passive fund research.
ESG criteria increasingly recognized and adopted
According to a survey released in October 2018 by RBC Global Asset Management, "nine out of 10 institutional investors believe that ESG-based portfolios are as likely or more likely to perform well than their peers. The survey indicates that ESG is not limited to equities, but also includes fixed income, real estate, infrastructure and non-traditional assets.
In the beginning, ESG regulators were content to exclude securities related to weapons, landmines, tobacco and fossil fuels. Today, they are trying to influence companies to incorporate ESG principles into their operations. As of October 2018, most Canadian assets embed ESG criteria.
A growing trend
We all have a social conscience. We are not indifferent to the killings in the United States or the growth of natural disasters or the ravages of drugs and tobacco.
For the same return, we are getting on board with ESG investing. Normally, a fund is made up of a hundred securities, but there are thousands of them. It's easy to exclude weapons, tobacco or alcohol without affecting performance," said Normand Vachon, Managing Director, Institutional Investors, at BMO.
Even personal insurers are looking at ESG factors
As you know, life insurers have large sums of money to invest, the monthly premiums on your policies.
Natural disasters can have a significant effect on the mental health of disaster victims, possibly leading to an increase in mental health claims. Advisor's Edge recently reported the results of a 2018 Manulife study following the 2014 floods in Burlington, Ontario. Half of the 3,500 households affected report still being afraid when it rains.
Rising temperatures can lead to an increase in mosquito-borne diseases. It can affect infrastructure and buildings owned by these businesses in flood-prone areas. Institutional investors such as insurers are well advised to invest with ESG factors in mind.
We have more and more tools to verify the ESG rating of each fund we offer. We'll be keeping a close eye on developments in this area, which you'll likely be hearing more and more about. We'll keep you informed and guide you through the steps you need to take.