How to build a sustainable investment strategy (ESG) - Kerr Financial
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How to build a sustainable investment strategy (ESG)
Category: Financial Planning, Investment Management Tags: Alternative Investments, Canadian, fee only, Financial Planning, integrated investment, investment strategy, multi-manager

Build a sustainable investment strategy (ESG) in your portfolio


A Tipping Point

In the world of epidemiology, the tipping point is known as when epidemics change and reach their critical mass. This year we have witnessed firsthand how the coronavirus evolved from a regional health issue at the start of the year and transformed into an influential force that has significantly impacted the everyday lives of billions of people around the globe.

An Urgent Need for a Co-ordinated Effort

While the health crisis has dominated headlines this year, there have been numerous developments that have highlighted the massive challenges the world is facing ranging from climate change to social injustice. It has become particularly disheartening to hear stories of innocent victims that have lost their lives because the color of their skin or seeing images of the devasting fires in California. There is undoubtedly an urgent need for coordinated efforts and dedicated resources to try and address these troubling issues.

Significant Growth in Sustainable Investment Strategies

In the investment world there has been encouraging developments recently as a growing number of investors and corporations have committed to taking action on various issues. We’ve witnessed significant growth in sustainable investing strategies that combine traditional investment approaches with specific consideration given to the impact the investment has on environmental, social and governance issues (‘ESG’). While we would hesitate to suggest that we are at a similar tipping point as it relates to sustainable investments, we are certainly experiencing a powerful trend in support of issues that were largely ignored only a few years ago.

Global Sustainable Funds attracted US$71.1 Billion

In 2006, the United Nations’ Principles for Responsible Investment (PRI) was established to promote the incorporation of ESG factors into the investment decision-making process. In the last decade the number of signatories supporting the PRI has grown four- fold to over 3,000 members, and with signatories that have more than US$ 100 trillion in assets under management. Most interesting is that the market volatility and the uncertainty surrounding the pandemic has not wavered investors’ interest in the area. Morningstar reported that global sustainable funds attracted US$ 71.1 billion in net flows in the second quarter of 2020. Corporations have seen the shift in priorities and a growing number of companies are not only disclosing how they perform relative ESG issues, but are also outlining the targets they want to achieve whether it be to reduce their carbon footprint or improving the diversity of their executive teams.

More Investment Managers are considering ESG Factors

Many of the investment managers we work with have been considering ESG factors in their investment processes for many years. We believe this practice generates considerable value for investors in a couple ways. Managers that are knowledgeable of ESG factors can identify companies with products and services that are poised to benefit from growth in demand whether it be for renewable energy or onshoring supply chains. Furthermore, managers that can effectively identify companies with poor governance practices or that are operating without consideration of the impact they have on the environment, can avoid making investment that may prove costly to investors in the future.

Principles for Responsible Investment (PRI)
Principles for Responsible Investment – attracted US$ 71.1 Billion Q2 2020 – Morningstar

Encouraged by the progress and optimistic for the future

As advisors we are encouraged by the progress being made in the sustainable investing arena. The quality and availability of data is constantly improving, such that as a result our decision-making process on various ESG strategies is also improving. Second, the level of discourse on important issues such of worker compensation and climate change are beginning to cause organizations to take real action and we are seeing some modest improvements taking place. Lastly, there are growing numbers of strategies outside of the traditional asset classes, that provides us with more latitude in selecting investments with strong sustainable characteristics.

Working to identify ESG Opportunities

We remain optimistic that the strides made in advancing sustainable investment strategies will continue to improve. As such, we are diligently working to identify investment opportunities to help our clients achieve their financial objectives, while also advancing environmental and social values that are of importance in their lives.  Contact us if you are interested in understanding how to build ESG strategies into your investment portfolio.

 

 

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