At PWL, we’ve noticed a big increase in interest in responsible investing among our clients and those who are considering becoming our clients. One of the key questions we are asked by these people is: Will I have to give up returns to invest according to my values?
It’s a perfectly legitimate concern. We all want a greener, fairer and more ethical world, but we also need to achieve our financial goals. And many investors believe responsible investments will underperform mainstream alternatives.
We have researched this issue thoroughly as a part our efforts to ensure our clients benefit from the latest knowledge on responsible investing. Our analysis of the wide body of research on the topic has led us to the conclusion that, if executed properly, an environmental, social and governance (ESG) focused portfolio will likely have a similar risk-return profile as a non-ESG portfolio.
That’s reassuring and makes sense. You would expect a diversified portfolio composed of companies committed to high standards of ESG behaviour to perform well. And, while more research is needed, several studies have found that companies with strong ESG practices generate better financial performance than their peers.
For example, a recent Morningstar study found that the firm’s ESG-screened indexes have “generally outperformed their mainstream counterparts.” In explaining this result, the study notes that “environmental stewardship is not just good for the planet, it can also help a company control costs, avoid damaging incidents and position itself for tomorrow’s economy.” Similarly, good outcomes can be expected from strong social and governance performance, the study says.
Besides the relatively good performance of ESG investments, another piece of good news for responsible investors is the growing availability of low-fee ESG exchange-traded funds in Canada. In a recent article, my colleague Peter Guay, discussed the latest developments in this area of the market.
Our firm is fully committed to the highest environmental, social and ethical standards in our own business and to supporting our clients who want to make responsible investing a priority in their portfolios. We call this values-based investing and it goes hand-in-hand with our traditional focus on evidence-based investing that relies on scientifically proven principles.
The world of responsible investing is growing fast and generating a lot of attention. Sometimes, it can be complex and difficult to navigate. To help you make sense of it and make decisions that are right for you, we’ve published a free, easy-to-read eBook titled Responsible Investing: Putting Your Money Where Your Values Are.
Please have a look and let me know if you have any questions or comments.