Ethical Investing

What is ‘Ethical Investing’?

Can you reach your goals while investing in alignment with your values?

Should we consider results beyond just financial performance of a company?  What about the environment?  How does the company treat their workers?  How is the company governed?  Does the share structure make it difficult for investors to have a say in how the company is run?  The evidence shows you can earn solid returns and meet your financial objectives without sacrificing your values.  IN FACT, some believe that returns could be better over the long run when investing in more responsible companies.  Think about headline grabbers: BP blowouts, Joe Fresh clothing factory collapse in Bangladesh, destroyed tracts of rainforest for palm oil for chocolate bars – all these issues will continue to come to the forefront as we come to realize the impact we are having on the planet, and with more people accessing the internet.  Investing in companies that are not paying attention to ESG factors – Environmental, Social, and Governance – may be detrimental to your financial health in the long run.

What are some additional investments some investors choose not to own?

They could include global mining companies, cigarette manufacturers, weapons makers, or companies that derive the majority of their revenues from gambling, pornography, or poor environmental practices (consider logging companies or fish farms).  Some investors prefer to avoid investing in companies which test on animals, keep them in poor conditions, or require excess freshwater resources to produce what they do (think of the challenges of Coke operating India where freshwater reserves are challenged).

Now unfortunately the reality is many investment fund managers operating with some level of ethical screening / filters may still own companies you don’t approve of.  Why is that?  It’s because many seek to avoid the worst sectors, and include all the rest.  Many actually outsource the ethical screening process.  In sectors that are controversial, managers will look for companies exhibiting leadership within their sector. Many fund managers will have third party screens to ensure each positions meets certain ethical screens, often focused on ‘ESG’ or ‘Environment, Social, and Governance’. For some fund companies, there’s a level of engagement. If over time the Board of Directors doesn’t take recommendations relating to transparency, corporate governance, gender equity/diversity, etc, a divestment may occur. Some individuals look at ‘Shariah’ compliant portfolios, to try and be more ethical – but again, these may not meet your particular standards and criteria.  I was asked the other day why Procter and Gamble and Unilever were in a WealthSimple Shariah portfolio.  Wealthsimple, like many other investment companies, outsource the ethical decision making process.  The reality is, individuals who really want true power over what they own may just have to build out their own portfolio.  Ensure you understand the principles of asset mix and diversification thoroughly before undertaking this process.  Contact us for further guidance or direction.

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