Green and socially responsible investing: reconciling performance and personal values

Our consumption habits are increasingly influenced by factors that go far beyond getting the best bang for our buck.

Before spending, we may ask ourselves whether the product is recyclable or has a limited ecological footprint. Some consumers also consider the company’s social values.

It was inevitable that the financial markets would follow this trend. As a result, investment products for those who want to align their savings with their personal values are increasingly popular.

Millennials are the major contributors to this trend. According to a recent survey, they’re 65% more likely to take ESG (Environment, Society, Governance) factors into account when making investment decisions.

But X’s and Boomers are following suit as well. According to the same survey, about half of them think responsible investing will become increasingly important over the next five years.

Understanding Sustainable Investments and ESG Funds

For most regular investors, responsible investing is available through ESG funds, by including them in their portfolios.

Just like traditional funds, ESG funds are created using financial analysis grids. But in addition to profitability, these grids consider additional criteria (Environment, Society, Governance) in the selection of stocks and bonds.

The three pillars of this investment philosophy

Environmental 

This may refer to companies whose missions are focused on ecological concepts, such as the development of renewable energies or promoting access to clean drinking water.

But it can also include companies that are making efforts to reduce the environmental footprint of their operations and supply chain.

Social

This refers primarily to business practices that demonstrate an organization’s willingness to be an agent of positive social change.

A company that offers excellent working conditions or refuses to deal with a government that violates human rights could fall under this category.

It could also include an organization that is heavily involved in its community or that promotes inclusion and diversity.

Governance

Closely related to the previous theme, the notion of governance is mainly based on corporate culture, specifically at the senior management level.

For example, an organization that grants overly generous bonuses to its executives despite disappointing results or that demonstrates a lack of transparency towards its shareholders could hardly qualify under the governance criterion.

Should performance be sacrificed?

One might think that investors must necessarily accept a smaller return or tolerate more risk in order to reconcile their financial strategy with social and environmental factors.

While this idea might have held some weight a few years ago, the performances of sustainable and responsible investment are increasingly similar to those of traditional investment.

Investment options are also diversified and can offer a variety of risks depending on the analysis grids.

ESG analysis grids vary widely. Some may be more stringent, while others may allow fund managers more leeway.

For the average investor, it’s simply a matter of getting informed on the selection criteria, the risk, and the potential return in order to choose the right fund.

Are you interested in responsible investing?

Our team of advisors at MCB Group can help you reconcile your personal values with your portfolio. Contact us to find out what opportunities are available to you.