Investment professionals have little to lose and a lot to gain by having a conversation with their clients about responsible investing (RI). In fact, surveys conducted in Canada and around the world have consistently found that investors are interested in putting their money to work in a socially and environmentally responsible way. As a result, a growing number of financial advisors and portfolio managers across the country are seeing this in their practices and taking steps to make RI a core part of their business.
"Most clients like to know their options, so they see it as positive when I raise the idea of RI," says Jackie Ramler, portfolio manager in Barrie, Ont., with Executive Wealth Advisors, which operates under the banner of Toronto-based Raymond James Ltd. Specifically, she notes that millennials and educated retirees — most of whom are women — are the main groups of clients who ask her about RI. "This plays out exactly as the research has suggested."
If Ramler's clients don't ask about RI, she often brings it up while discussing risk management as RI has been shown to help protect against downside risks. She also raises the topic of RI in the context of affecting positive societal change. For example, she notes that "fossil fuel-free investing is gaining attention as more clients are looking at hybrid and electric cars."
"[RI]'s a natural fit for many clients," adds Ian Robertson, vice president, director and portfolio manager with Odlum Brown Ltd. in Vancouver. "Most appreciate the fact that we bring it up, that we integrate it into our approach and offering. No client has reacted negatively to the fact that we raise and discuss the issue."
In Robertson's experience, almost all clients interested in RI "bring some kind of values-based approach to the table," he says. "Most often, they're interested in screening out companies that have some kind of harmful social or environmental impact, or perhaps have egregious executive pay packages. At the same time, they're often interested in screening for companies that appear to have some redeeming social or environmental aspect. For example, companies that may reduce their carbon footprint, or help address a social need."
The integration of environmental, social and governance (ESG) factors into investment decision-making provides a more analytical and comprehensive approach to investment valuation, Robertson notes. Although the values-based approach is the first and most common approach clients mention, "it's the valuation approach that's being adopted by more and more financial analysts, portfolio managers and mutual funds. It's also a core focus of the Responsible Investment Association's advisor certification program, and the first obligation of signatories to the United Nations-backed Principles for Responsible Investment."
Christian Farstad, portfolio manager and wealth advisor in Vancouver with Toronto-based ScotiaMcLeod Ltd., says that a wide range of clients from different backgrounds ask him about RI, including retirees, millennials, women and men.
When meeting with existing clients or potential clients for the first time, he always raises the topic of RI. "When meeting with a prospective client, I review the process of how securities are selected for their portfolio and in that process, I discuss ESG. I also let people know that I have my RI advisor certification."
For Farstad, ESG analysis is a valuable complement to his quantitative analysis of potential investments. It's a process that enables him to dig deeper into a company and "make better, more informed decisions with more information. Researching companies is more than ‘just the numbers'."
For Robertson, it's only a matter of time before RI becomes the norm. "RI is like many other aspects of investing that have evolved over time. I believe that the historical pattern will hold again," he says. "RI will become the standard in coming years, just as geographical and sectoral diversification are the norms today but were novel just a few decades ago."