1. What is an ethical investment?
Unlike many traditional approaches, the ethical investment strategy does not only consider a company’s bottom line; it also considers environmental, social and governance (ESG) factors.
By opting for such an investment, you will adopt either a negative screening approach to exclude sectors or companies with weak ESG performance or a positive screening approach that will encourage you to actively invest in companies with a social responsibility rating. High social status in the sectors that matter to you.
This concept is nothing new. The first mentions of ethical investing, or socially responsible investing (SRI), date back to the 19th century. The modern era of SRI took shape in the tense political climate of the 1960s. In the 1990s, SRI evolved to include a more diverse set of issues, such as tobacco and climate change.
Since then, the sustainable investing market has continued to grow. According to a 2016 report by the Responsible Investment Association, assets in Canada selected to be part of at least one responsible investment strategy totalled more than $1.5 trillion, an increase of 49% over 2 years.
2. Why would I want to add ethical investments to my portfolio?
Ethical investing allows you to pursue your financial goals while investing in funds that match your values.
Non-financial performance indicators may include support for workplace social responsibility policies and environmental practices.
Certain groups – such as millennials and women – are interested in ethical investment strategies. According to another AIR report from 2016, 70% of female investors believe it is essential to consider ESG factors when making investment decisions, and 75% of millennials say they would pay more for ethical investments.
3. Will ethical investments allow me to obtain a higher return?
While there is room for discussion, many investors have achieved competitive returns when they have invested in funds that match their moral values.
The University of Hamburg and Deutsche Asset Management jointly conducted a study in 2015 on the link between ESG factors and the performance described in more than 2,000 academic studies published since 1970. A positive correlation was found between taking into account ESG factors and strong investment performance.
A 2015 study from Morgan Stanley also has good news. It covers the performance of 10,228 mutual funds and 2,874 separately managed accounts. According to this study, sustainable investment strategies generally yielded a return similar to traditional design and frequently exceeded them.
Socially responsible funds can outperform traditional funds – meaning you can make the right choices and enjoy high returns.
4. Where can I find more information about this?
The company’s website can be an excellent place to start, but there are plenty of other resources to help you determine if your investments meet your ethical criteria.
For example, if you invest in mutual funds, you can check Morningstar’s Sustainability Ratings to see how well the funds take ESG factors into account and compare their rating to that of other funds.
Suppose you have an interest in socially responsible actions. In that case, you might want to review Corporate Knights magazine’s Global 100, the annual list of the 100 most sustainable companies in the world, including Sun Life Financial, is a member, in 2017, for the 8th consecutive year. You can also consult the FTSE4Good Index to obtain the stock market indices of ethical stocks and know their returns.
Learn more: Sun Life Financial was named one of the 2017 Global 100 Most Sustainable Companies.
5. Does choosing ethical investments to have an impact on the business world?
By choosing ethical investments, you make a difference in the business world. As the number of savers who value more than just financial performance continues to grow, investment companies worldwide began to adapt.
