Want to invest responsibly but not rely on money growing on trees for your market return? What exactly is responsible investing (RI) and what should you consider before asking your financial advisor about these products? Jessica Moorhouse, money expert, financial counselor and financial literacy advocate, discusses the basics of responsible investing and ESG solutions with Desjardins Group responsible investment specialist Deborah Debas.
Jessica: Hi everyone, and thanks for joining us. My name is Jessica Moorhouse and I'm a money expert, financial counselor and financial literacy advocate. Today I'm joined by Desjardins Group Responsible Investment Specialist Deborah Debas to talk about a very important topic, responsible investing. Thanks so much for joining me, Deborah.
Deborah: I'm happy to talk, Jessica.
Me too!, I'm very excited to talk to you about responsible investing. It's a very hot topic. I think a lot of people specifically are wondering why should they consider being a responsible investor and what exactly does that mean.
I think the world is in a transition right now. I believe that any investor should be very mindful of anything that can drive change to the market or at least entrust their money to people who are aware of those changes. And as companies are facing increasing complexity on a global scale, I think, as investors, it's pretty important that we perhaps revisit some of the ways that we were traditionally making our investment decisions and look a bit deeper into the companies we want to include in our portfolios. I believe that being financially sound is extremely important. However, if we look away from the balance sheet and perhaps include environmental, social and governance practices to really get a deeper understanding and analysis of the companies that we invest in, we'll be able to find the companies that are better equipped to face the challenges of a changing world. And adding this extra layer of due diligence, this information about the environmental, social and governance practices of the companies that we include--this is responsible investing.
I think one thing on a lot of investors' minds is if they decide to become a responsible investor and invest in responsible products, are they going to be sacrificing returns? How do the returns compare: responsible investing products compared to regular products?
They actually compare very well. In fact, if you look at the past returns we've had, especially during the COVID-19 downturns in the markets, you'll see that responsible investing or ESG solutions have been overrepresented in the best funds or the best solutions out there. This is due to two things. First of all, we might have misconceptions about responsible investing. We may think, "it's just windmills and planting trees. How am I going to make money with that?" But it's not that, it's actually very diversified. And this extra layer of due diligence and ESG analysis that goes into choosing the companies to be part of our portfolios is actually very good for risk management. ESG or responsible investments tend to fare better in market downturns. And they're also pretty well-positioned for a rebound because the type of companies that we include are companies that are making themselves resilient, these are companies that have very strong management teams, companies that are really building a stability and flexibility for themselves to be able to manage those kind of difficult conditions in the market. There are a lot of researchers that are correlating good ESG practices with outperforming returns in the market. So, this is really a myth, and I believe that the results we've had in the past months and the past years are really a demonstration of that.
I think when a lot of people think about these responsible investing products they think, "there must be a bunch of companies in there, they're all about creating solutions for the environment and society. That's not exactly how these products are built. Do you want to speak to that? How are these responsible investing products built?
We do have to different strategies that we can apply to different kinds of products. If I look, for example to our mutual fund line, we will be excluding some sectors. So we'll be excluding tobacco, nuclear energy, weapons and now we have also added one exclusion filter to targeting fossil fuel production and pipelines as well. So, these are the sectors we exclude, but other than that pretty much the rest of the economy is open to responsible investing, taking into account that the companies that we choose have solid financials and also are leaders in their ESG practices. This means that if you invest in the Canadian fund, then what you'll have in your portfolio will be pretty representative of the Canadian economy. A large share of financial, telecom, materials and industrial firms. Why are they included in a responsible investing portfolio? Because we know and acknowledge that pretty much all human activities have an impact on the environment and on communities. And what we want as responsible investors is we want to make sure to have a broad impact on the market and influence companies to reduce their negative impact and improve their positive impact. As shareholders, we have a voice and this voice can be heard and we do have a say as to how the company evolves and how they grow in the long term. And we can use this voice and engage with the companies in our portfolios to make sure to influence them, raise issues as they arise and engage with them to improve their ESG practices so that we can have a positive impact on the long term.
Absolutely! Thank you so much for taking the time to share your knowledge about responsible investing. I feel like people watching this video are going to know so much more than they did before. Thank you for taking the time to chat with me, Deborah.
You're very welcome! It's a pleasure.
For more on this subject, you can read:
Whether you plan to invest with the help of an advisor or take a self-directed approach, the first thing you need is to understand your "investor personality."
It's a common misconception that you need a lot of money to invest. The real trick is knowing your goal so you can choose where to invest your money.
Choosing RI (responsible investment) means opting for an investment strategy that offers attractive return potential while contributing to sustainable development for the environment and communities.