Responsible Investing: the road to a better and brighter future
They say that money makes the world go round.
The more money involved, the more spin (or ‘impact’) it will have, wherever that money moves and whomever it exchanges hands with—for better or worse.
However, now more than ever, we live in a world that strives to do better.
Take investing, for example.
With trillions upon trillions of dollars being bought, traded, and sold globally, Responsible Investing aims to humanize the impacts of those dollars in a way that not only provides financial return, but also encourages positive social outcomes (beyond just profit). Because with global challenges such as climate change and socio-economic inequality leading the wave of today’s top humanitarian causes—investors, companies, and governments of the world have chosen to embrace the goal of doing better by making it their mission to address these (and other) important issues.
The 3 main guiding principles of Responsible Investing are as follows:
1. Environmental, Social, and Governance (ESG)
These factors are at the heart of Responsible Investing, reflecting a wide range of issues that can affect a company’s performance, reputation, and long-term value.
These factors can be broken down as follows:
- Environmental: everything from climate change and resource scarcity (i.e. low supply/high demand); pollution and waste management; and biodiversity/land use
- Social: labour standards; human rights; community relations; health and safety; diversity, equity, and inclusion practices
- Governance: how a company is being run/managed at the corporate level including board diversity and structure, executive compensation, level of transparency and disclosure of relevant information (so that consumers and investors can make informed decisions)
How you can implement ESG into your own Responsible Investment strategy
Whether it’s reducing their plastic production levels within a certain timeline, improving the working conditions in their supply chain or partnering with organizations that support fair labour practices, consider investing in companies that align with the values that are most important to you.
2. Impact
Following ESG comes Impact Investing—a Responsible Investing strategy that uses key elements to target companies or industries that produce positive social or environmental outcomes, in addition to solid financial returns.
Elements of Impact Investing:
- Intentionality: the desire to have a positive social or environmental footprint is essential when choosing this investment strategy, as it can outweigh the desire to generate greater financial returns (i.e. choosing to invest in a solar panel startup vs. a large, established oil company)
- Impact measurement: the commitment to measure and report the social and environmental performance and progress of investments, while ensuring transparency and accountability (which ties back to ESG)
- Range of return expectations: impact investments target financial returns that can range from below-market to risk-adjusted rate (however, they are typically expected to generate a return on capital—or at minimum, a return of capital)
- Asset classes: investments can be made in both emerging and developed markets across asset classes, including (but not limited to) cash equivalents, fixed income, venture capital, and private equity
How you can implement Impact Investing into your own Responsible Investment strategy
Earlier we mentioned how money talks. Well, this is where you have the chance to make your money talk by investing in sectors such as sustainable agriculture and renewable energy, or buying mortgage-back securities with a goal of funding affordable housing, healthcare, and education for low-income communities.
3. Ethical Investing
Sometimes used interchangeably with Impact Investing, but with its own unique set of factors, Ethical Investing is all about supporting companies that have values-based practices, divesting from those who don’t, while also generating positive financial returns.
Key factors of Ethical Investing:
- Positive screening: involves investing in companies with a strong ESG standing (basically an overall commitment to positive environmental, social and governance initiatives)
- Negative screening: includes avoiding companies or industries deemed harmful, such as tobacco, weapons, or fossil fuels—and actively seeks investments in businesses that promote positive social and environmental outcomes (once again tying back to ESG)
- Best-in-class approach: selecting companies with the highest ESG standing within their industry, rewarding leaders (and encouraging improvement among competitors)
- Active ownership and engagement: investors/shareholders can influence corporate behaviors by engaging with company management, voting on shareholder resolutions, or collaborating with other investors to advocate for change in areas such as clean energy, gender equality, or affordable housing
How you can implement Ethical Investing into your own Responsible Investment strategy
As an education member, you spend every day at the forefront of social change. After all, today’s youth are not the type to sit idly by; especially when there is a cause they believe in. So, for you, whether that cause is climate change, human rights or animal welfare, let the values that speak most to you be your own guiding star when it comes to the whole Responsible Investment decision-making process.
Need help implementing your Responsible Investment strategy? Get in touch with us.
In addition to ensuring your investment strategy aligns with your core values and goals, we also offer financial advice that spans a wide range of educator-specific areas (such as what you need to know to take advantage of a deferred salary leave and how to maximize your pension income in retirement). It’s the kind of genuine understanding that can truly make all the difference when it comes to making your financial dreams a reality.
