Investing your money while mitigating climate change is possible through Responsible Investing (RI). However, you need to do your homework to choose investments that match your environmental intentions. Here’s how.
The first step is to take stock of your portfolio: in what types of investments are your dollars invested? Since the fossil fuel sector represents 15% to 20% of the capitalization of the Toronto Stock Exchange, unfortunately, there is a chance that your savings will finance oil and gas companies.
Some of your investments may bear the ESG acronym, three letters that refer to the environmental, social and governance criteria taken into consideration by the most responsible financial products (equities, bonds, mutual funds), which is a good start for green your wallet.
Know what you want
Either way, you need to indulge in a little soul-searching. “Our personal motivations must be aligned with our investment motivations. We must therefore ask ourselves what our investment objectives are, in other words what we want our money to be used for,” indicates the director of sustainable investment at Addenda Capital, Réjean Nguyen.
To put it simply, you can first bet on investments that exclude the hydrocarbon sector (oil, gas, coal), the main contributor to global warming. So-called “green” ESG products are also a good choice since they are made up of companies involved in the production of clean energy, sustainable transport, the circular economy, waste recycling, etc. Finally, so-called “transitional” ESG products allow you to finance companies that are aiming for the carbon neutrality of their activities.
To avoid putting all your eggs in one basket, it may be wise to diversify your portfolio by balancing it between these three families of assets (fossil fuel-free, “green” and “transitional”). “For 15 years, ESG financial products have produced returns equivalent to or better than traditional products,” points out Francis Paquette, financial planner at the Caisse d’économie solidaire Desjardins.
To ask questions
Most financial institutions offer ESG investments that refer directly to climate with terms like “climate initiatives”, “low carbon” or “low CO2”. But since there is no guarantee that these funds are really responsible, “it is up to the investor to do his homework and find out for himself”, points out Réjean Nguyen.
If a fund is listed in the Canadian Association for Responsible Investment (RIA) online catalog of over 150 sustainable investing products available in Canada, that’s a good start. The AIR site is also a good resource for training and learning more about responsible investment.
Then, you have to “bombarde your bank adviser or financial planner with questions” and “be critical of the answers received. Some people know more about it than others and if you’re dissatisfied, you can change it,” says Francis Paquette.
How are the companies that make up the fund selected and on what criteria? Is the fund manager a member of the AIR or has he committed to respecting the Principles for Sustainable Investment (PRI) issued by the United Nations? Does he check with the companies he has chosen that their boots follow their lips? If the fund is geared towards reducing greenhouse gases (GHG), does it publish its GHG intensity indicator each year, i.e. tonnes of CO2 emitted per million dollars invested?
So many questions to ask that will allow you to make informed choices. And they will be even more so if you take the time to go through the annual reports of the investments you want.
The devil is in the details
Once your homework is done, you usually have to make trade-offs, even compromises. For example, among funds excluding fossil fuels or in “transition” investments, “we often find railway companies that transport hydrocarbons, among other things. Can we live with that? It’s up to each investor to answer them,” emphasizes Francis Paquette.
If, however, you want to make your life easier, Réjean Nguyen advises to stick to “green” investments, because “transition funds are more complex to analyze given that there are multiple avenues to achieve carbon neutrality”.
This special content was produced by the Special Publications team of the To have to, pertaining to marketing. The drafting of To have to did not take part.