In 2020 Impact Investing was up 42% from just two years prior. And its growth has been driven by women. In fact, ESG (Environmental, Social, and Governance) investing now accounts for one third of all professionally managed assets in the country.
A recent study by RBC Wealth Management found that female clients are almost twice as likely as their male counterparts to say it is important that the companies they invest in integrate ESG factors into their policies and decisions, and are more likely to prioritize ESG impact when deciding which companies to invest in.
These statistics gave us pause at WealthChoice to take a second look with our portfolio team on Impact Investing. Below we share some basics on this investment trend.
What is Socially Responsible Investing or Sustainable Investing?
ESG is values based investing for Environment, Social, and Governance focused investment strategies. Drilling down, what these categories cover is this-
- Environmental factors include energy and water use, carbon emissions, recycling, waste output and workplace environment.
- Social factors include how you treat your people, customers, suppliers, community. This includes pay and advancement equity, gender, age, ethnic diversity.
- Governance factors include leaders with integrity, competence, experience and honesty, diverse Board of Directors, transparency.
Through a screening process a score is created based on how companies perform in these areas. Impact investing-or SRI (socially responsible investing) then takes the ESG scores and identifies companies that share your values.
How Do You Get Started with Impact Investing?
You choose companies, funds, projects that align with your values, and their ability to generate competitive financial returns. What impact do you want to make? What values are important to you? Seek investments that directly correlate to your cause, but expect your investment to generate a financial return as well as a social return.
In the past investing with an ESG focus meant giving up financial performance. Until recently, if a client wanted to invest in ESG funds, it likely meant giving up return. This was due to the high costs associated with research and analysis needed for ESG screening. These costs have decreased over time and there are now ESG options for cost conscious investors.
There is no way of knowing if ESG investments will outperform over time. We stress to our clients that if the purpose of investing is to fund their goals, our focus should be on investing for growth in investments we believe will achieve that.
Being mindful of the interest of so many to align investing with personal values, at WealthChoice we have recently created SRI portfolios with our portfolio team. If you’d like to learn more about how we are helping clients invest with impact, please reach out to us.
