By Renée Sylvestre-Williams and the Sun Life team
Want to grow your money and invest in a sustainable future simultaneously? Choose investment options that incorporate ESG factors. See what this means for you and your wallet.
How often do you hear about ESG factors lately? This recent surge in popularity can be attributed to the growing interest of Canadians in climate issues and human rights.
Many savers, primarily those of Generations Y and Z, want their portfolio to fulfil a dual purpose. They want :
achieve positive returns;
supporting environmental sustainability* and socially responsible causes.
*Environmental sustainability refers to interacting with the environment without damaging or destroying its natural resources.
You can compose a portfolio with sustainable funds – called ESG funds. No need to sacrifice solid gains to get there. But first, it is essential to know:
what makes an investment sustainable; and
how ESG factors are integrated.
In this article, we will answer these questions about ESG factors:
What are ESG factors?
How do ESG factors impact investment performance?
Which criteria fall within the scope of ESG factors?
ESG and SRI factors: what’s the difference?
Are funds that incorporate ESG factors suitable for you?
Who can help you make sustainable investments?
What are ESG factors?
ESG factors relate to a company’s environmental, social and governance practices.
ESG integration is the consideration of these three factors in investment decisions.
Incorporating financial and non-financial (ESG) factors into your investment decisions can help frame the sustainability risks in your portfolios.
In a traditional framework, companies are evaluated based on their profitability. Funds that integrate ESG factors into their investment process also assess companies based on things like:
carbon footprint management;
social action (labour standards, gender equality); and
the quality of corporate governance.
Did you know that an advisor can talk to you about ESG factors? It will help you choose the investments that best meet your short-term and long-term needs. Find a Sun Life Financial advisor today.
How do ESG factors impact investment performance?
Studies show that integrating ESG factors into investment decisions can positively affect performance.
For example: according to investment research firm Morningstar, funds that have incorporated ESG factors into their investment approach did suffer a sudden loss in early 2020 due to the COVID-19 pandemic. But these funds performed much better than the others despite everything. The MSCI Canada ESG Leaders Index, has outperformed the MSCI Canada Index in 10 of the past 12 calendar years.
Which criteria fall within the scope of ESG factors?
Environmental factors include the following issues:
climate changes;
carbon emissions, biodiversity;
water resources and water pollution;
energy resources and their management.
Social factors include issues such as:
human rights;
civil liberties;
employee health and safety;
Diversity, Equity and Inclusion (DEI);
crime and security;
trust in society and institutions;
exclusion, poverty and wage gaps.
Governance factors* relate to the conduct of the affairs of the company, including:
accounting practices;
risk control;
board independence;
ethics policies;
executive compensation;
data protection.
- Governance takes into account other factors. For example, whether compensation aligns with business results and performance. Also, if the management team communicates clearly, effectively and transparently with shareholders.
We also assess the company’s balance sheets and profitability for investments that integrate ESG factors.
Large corporations may be rated against the UN Sustainable Development Goals. Stock exchanges also have their guidelines, for example, Environmental and Social Disclosures: Toronto Stock Exchange Listing Guide.
Did you know that Sun Life is one of the most sustainable companies globally? To know more.
ESG and SRI factors: q
