Responsible Investing – Sustainability
June 16, 2017 | Sustainable Waterloo Region
“Why let your money do something you wouldn’t?”
This is one of the best questions I’ve heard describing the motivation behind socially responsible investing (also known as ethical investing, responsible investment, impact investing, or environment-social-governance investing).
Whatever you call it, today’s blog post is all about investing with your values.
What we’ve been taught vs. what we’re learning
Traditionally we’ve been taught to focus only on the expected dollar return of our investments, but digging deeper, there are many other elements to a successful investment.
There are social and environmental impacts behind every business that our money supports as investors, even if it’s just our extra savings from Grandma’s birthday gifts, or our company’s small reserve fund.
By remembering that, we suddenly have a whole world opening to us.
We can use our money for social good not only by donating to charity, or buying from companies we want to support – we can literally purchase the companies whose values and actions we admire, or at least a small piece of them!
It was this idea that blew my mind as a 16 year old at my high school’s ethical investment club. Years later, this still blows my mind.
While I’m about to share what I’ve learned from my personal experiences, now’s a good time to disclose that I am not an investment expert, so please don’t take any of this as financial advice! It’s also good for me to disclose that I have volunteered, worked at, been a member of, partnered with, or have friends at many of the organizations I’m about to discuss.
And, this is longer than your average blog entry. If you’re overwhelmed, scroll to the last couple of paragraphs for the gist of it!
Elephant in the Blog Post: Will I need to compromise financial returns to invest responsibly?
Probably not! Most studies show equal or greater value for most socially/environmentally responsible investment funds.
Which makes sense! Many make the case that treating societal and environmental impacts seriously is often a sign of strong governance and risk management, which can create long term excellence in an organization.
But does this actually work? Does responsible investing actually have a social or environmental impact?
At the very least, investing in organizations you believe in sends a clear message to those companies, their competitors, and the market in general that what they are doing is what you want to see in the world. This helps not only the organizations you want to support directly, but the whole economy by showing the direction you want to head.
Beyond that, directly supporting companies and organizations with financial support has obvious substantial value, whether to a larger corporation signalling high value of its shares, or a smaller organization which needs capital to make its impact.
“Put your money where your mouth is” and “Vote with your wallet”
A famous form of investing with values was during apartheid in South Africa. Before formal government sanctions, individuals and organizations stopped investing in companies from the country because they didn’t want to support human rights violations which were occurring. This was a contributing factor to ending the system.
“In less than 10 years, almost $350m of investments was withdrawn from South Africa. And when Barclays eventually pulled its investments completely, they admitted it was due to the pressure from our campaign. Divestment works. I can’t put it any simpler than that.” – The Guardian
The divestment from fossil fuels movement falls under this category. There are many practical considerations about how this can work, to see a bit of an overview here is a good discussion. Those looking specifically to divest from an industry could look at examples of a “fossil free portfolio”.
While Rockefeller Foundation received international attention for divesting from fossil fuels, Toronto-based Inspirit Foundation has committed that all of its investment funds will go towards impact investments.
So, if someone was interested, where would they start?
First, make sure you have some clarity on your values. What matters to you?
The Environment? Health? Human rights? Animal welfare? Women, LGBTQ, People of Colour, People with Disabilities in leadership positions?
This is a very personal question for individuals, and no one will be able to give you the answer but you. If you are thinking about responsible investment for your company, take a look at the organization’s formal and informal values for guidance.
It goes back to the original title of this blog post…Is there anything you wouldn’t do, but your money is doing? Is there anything you’d like to see more of in the world, and are there companies embodying that change?
What do you want, and what don’t you want?
The Apartheid example is “negative” criteria, something you don’t want to invest in. But you can also use “positive” criteria, such as “companies in top 10% of its peers for waste management” or “lowest GHG emissions per capita” or “ranked top 100 employers in the country”, or “publicly working towards decreasing their environmental impact,” such as many of the Regional Carbon Initiative members at Sustainable Waterloo Region.
Many will go for a combination of the above.
For example, I’ve seen teachers’ pension plans. They would use “negative” criteria, such as no child labour, weapons, or tobacco. But they would also choose to invest in organizations that ranked highest among their peers for diversity and treating unions and labour organizing fairly.
Okay, so what and where can I invest, now that I’ve decided what I want to support?
Bonds, Responsible Bonds
Many are familiar with government bonds, which are lower risk but lower return financial instruments. There are many innovative bonds out there, some bonds are even part of non-profit co-operatives, which rings true to the values of many of the farmer-based co-operative roots of the Waterloo Region.
Solar Share Bonds – Solar Share is a non-profit co-operative which builds solar projects throughout Ontario. You earn 5% annually for 5 years (there is a 15 year option as well) with their solar bonds. Because this is a co-op, when you purchase bonds you become a member and have an equal vote with all other members at the organization’s annual general meeting.
ZooShare Bonds – A fun and innovative non-profit co-operative as well, ZooShare bills itself as an “investment with pootential” – using manure from all those big animals at the Toronto Zoo, along with farm and food waste from neighbouring areas, ZooShare is North America’s first Zoo-Biogas plant. It also offers 5% annually for 5 years with its current bond offering, based on its contract with the Ontario government wherein the plant will sell electricity to the Ontario grid for 20 years.
CoPower Green Bonds – 5% annually over 5 years, the Canada-wide company invests in proven technologies such as wind and solar.
Centre for Social Innovation Community Bonds – When this organization supporting social entrepreneurs needed a new location, they worked with financial institutions and the government to create their own financial instrument! Ranging from 3-4.5%, these bonds are a great chance to support a tangible asset, a building in Toronto.
Government Bonds – a more traditional way of impact investing. If you’re generally on board with your municipality, province, or country, you can often buy a government bond to support infrastructure and other projects. Typically the smaller the government, the higher the risk, but bonds in Canada are usually a fairly safe bet.
Socially Responsible Exchange Traded Funds (ETF’s)
If you’re not familiar with ETF’s, they are basically an index of a group of companies. Some ETF’s mirror all companies on a given stock exchange. The theory is this decreases your risk of investing in a single company and keeps your portfolio very diversified.
There are many exchange traded funds with groups of companies based around specific themes – water, green energy, treatment of employees, etc.! Some examples are in this article.
Direct Investment on the Stock Exchange
If you enjoy stocks, then you can simply find companies whose financial, environmental, and social performance you are pleased with. You can get this information from blogs, from major websites, from private information analysts or providers (ie. Sustainalytics or Bloomberg), or just check out the company’s annual reports, sustainability reports, publicly available information, etc.
The great news is, once you’ve bought a share in the company, you can use your voice as an “activist” investor (although if you’re like me, your voice will be pretty small, yet symbolic!). I quite enjoyed buying a Facebook share when they became public so that I could tell them that, as a shareholder, I wanted to see improved sustainability performance! And they ended up having a resolution for us to vote on about the sustainability report within a year, so I wonder if others were thinking the same thing.
There are many ways to trade on the stock market, including some online platforms which are free or low fee to get started.
RRSPs, Pension Plans, Mutual Funds, TFSAs
If you are fortunate enough to work at an organization which has a company-arranged pension plan or RRSP, you may have a limited range of pre-determined options for your retirement savings. Some organizations may have already created options for the more socially-minded investor, while others may start to offer these options if enough of their employees specifically ask for them, so it never hurts to try!
Even within the options provided, you can still make some responsible investment choices.
At my prior organization, I looked at the top 10 companies from each of the fund options, and picked the funds based on companies I knew were doing great work in some of my areas of passion, such as green energy and conservation. So at least I was able to have some small control in this area.
Many people end up creating self-directed RRSPs using a combination of the above options, which they can combine with Tax Free Savings Accounts for a diversified round of investment options.
Guaranteed Investment Certificates (GIC’s)
Right in Waterloo Region we have one of the most innovative GIC options I’ve ever encountered. Kindred Credit Union’s Oikocredit Global Impact GICs are comparable to government GIC’s at 1.3% return. These Guaranteed Investment Certificates support impact investment to alleviating people from poverty around the world, often in the form of microloans.
There are many ways to support local businesses, sometimes even with direct loans. Youth Social Innovation Capital Fund is an easy way to invest in Ontario-based youth entrepreneurs, you can get 5% back annually in supporting these organizations.
As Ontario and Canada’s crowdfunding laws have been changing favourably, look out for opportunities to buy part of a company through crowdfunding.
Regular, Old-Fashioned Savings Accounts
Beyond fancy stocks and bonds investing, even your bank or credit union’s savings accounts are supporting a range of organizations.
It’s within your power to ask them a bit about what your funds support, and voice anything you’d like to see more or less of as a customer or member. If enough clients suggest this, they are likely to start looking into it seriously.
The US has New Resource Bank, where all of their accounts directly support environmental or non-profit organizations, whether a chequing or savings account. It’s a beautiful thing to read through their reports and see that every penny is supporting organizations creating good in the world.
Credit unions are often a good option for people wanting to support local impacts.
Rome’s investment portfolio wasn’t built in a day
Not everyone joined an ethical investment club at 16 years old, so don’t assume you have to make big choices about investing overnight.
I started buying a few stocks from companies I was excited about, a couple years later I bought a solar bond, then a Zooshare and CSI bond, and then I went full on ETFs, Impact GICs, and more! Some of my friends at school even bought a solar bond together because they didn’t have enough money to do so alone, but they wanted to be part of this new way of investing.
If this feels like too much, there are some things you can do.
As an individual or organization, you can ask your bank or credit union, financial institution, or a responsible investment specialist to learn about the options they have for you.
Banks and credit unions may have limited options for responsible investment, and if you look at their socially conscious mutual funds it’s common to still see many companies that may not your criteria. It’s okay to tell your bank you’d like to see something different, options are changed and added based on consumer demand.
If you would like an expert to talk you through the options based on your values and risk tolerance, there are options such as The Sustainable Economist, who also has some ready-made portfolios suggested for free on their site. If you’re an organization, there are advisory firms such as Purpose Capital who can help your organization with these conversations.
What do you think?
I think in a few years, it will seem strange that we were taught to just put our money into anything that seemed to have a high ticker value, without thinking of what the money was doing and how it was impacting the planet.
What do you think?
Does your money do anything that you wouldn’t?
What are your experiences, obstacles, resources, or ideas regarding responsible investment?
Let us know!
– Victoria Alleyne