In this column, which appears every two weeks, we give you specific ideas on how to invest your money in the stock market.
The idea is seductive: invest responsibly and stay away from polluting, mismanaged and unfair corporations and vice industries. In practice, however, it is not so easy to reconcile your investments with your values! Let’s try to clarify this.
When Tim Nash first became interested in the topic 15 years ago, there were only a handful of so-called “responsible” funds in Canada. Today there are at least a hundred funds that more or less follow ESG (environmental, social and governance) principles. But sometimes too much is not enough!
Financial planner and founder of Good Investing, Mr. Nash, tells his clients straight away: It is utopian to think that we can find companies and funds that fully satisfy all concerns.
“It just doesn’t exist,” he said. The aim is to come as close as possible to our values. »
Different results
But what is an ESG fund? This is a fund that invests in companies that have achieved good environmental, social and governance ratings. The problem is that multiple companies perform ESG assessments, so the same company can get wildly different scores depending on its ranking.
As a result, Royal Bank was excluded from the MSCI Canada ESG Leaders Index, while National Bank and CIBC were excluded from the S&P/TSX Composite ESG Index, according to analysis by National Bank Markets. Financial.
And before you ask the question, yes, an oil company can be part of a responsible fund as long as it respects ESG principles sufficiently.
“You shouldn’t rely on a fund’s name,” warns Tim Nash, who instead advises looking at its methodology, which is the rules that dictate the inclusion or exclusion of companies.
It is often easier for mere mortals to see the list of securities held in a fund.
“There are people who get very angry when they see what companies are in their portfolios,” Nash says.
Diversified or sectoral?
The specialist divides his clients into two main categories: those who want to “do less harm” and those who want to “do more good”.
The former will be able to get by with ESG funds across a wide range of securities. The latter are attracted by sectoral funds (focused on, for example, renewable energy, diversity or veganism).
“However, I don’t recommend investing all your money in these industry funds. It’s better to go for diversified ESG funds and allocate a small part of your portfolio to thematic funds,” says Tim Nash.
Some claim that given the growing awareness of ESG issues in the business community, Responsible Investing is well positioned to deliver better long-term returns than traditional indices.
But Nash thinks it’s safer to expect equivalent returns.
He also draws attention to two special features of responsible investing. First, ESG funds sometimes have higher management fees than others. Second, their returns are likely to differ from those of the major indices as they have less exposure to certain sectors.
This effect was particularly visible in Canada last year, when the rise in oil prices penalized several ESG funds versus the S&P/TSX index. How will it be in ten years? Be continued !
Corporate Knights’ highest rated ESG funds
Canadian stocks: Desjardin’s SocieTerra Canadian Equity Income Fund
International stocks (except Canada and USA): iShares ESG MSCI EAFE Leaders Index ETF
Global Stocks: NEI Environmental Leaders Fund
Do you have any topics you can suggest to me? Write me: [email protected]