Responsible Investing 101: A Beginners Guide to Investing Responsibly

Responsible Investing 101: A Beginners Guide to Investing Responsibly

From recycling and reducing carbon emissions to advocating for pay equity for employees, Canadians are more passionate about creating an environmentally, socially, and equitable world than ever before. Have you set aside extra money and want to dive into investing, but want to put your money towards an investment that aligns with your values? If you are looking to invest your money meaningfully, responsible investments could be the missing piece to that puzzle.

What is Responsible Investing (RI)?

Responsible investing refers to investments that seek to generate strong financial returns while also making a positive societal impact. This involves selecting investments based on a company’s impact on people, the planet, profit, and how these institutions operate their business. So, whether you’re interested in investing in companies working to fight climate change, those that give back to their communities, or ones whose company culture promote ethical behaviour, there are several responsible investment options available to you.

What is ESG?

Responsible investments are measured by three main factors: environmentsocial, and governance (ESG). Depending on what you value, you can use your money to support institutions that promote a variety of important causes. Ultimately, with responsible investments, your dollars can make a positive difference at all levels – from your wallet and the environment to a company’s operations and your local community.

Environment (E): If environmental sustainability is a cause that is close to your heart, consider evaluating a company’s carbon footprint or views on air pollution to determine if it’s the right investment option for you. Conducting a thorough review of a company enables you to avoid investing in institutions that do not align with your values, such as those known for the excessive emission of fossil fuels. 

Social (S): This factor evaluates a company’s response to social trends, labour standards, and politics, as well as its social relationships with the people around them (from consumers and suppliers to employees and their communities). If you are interested in a fund that focuses on the social aspect, consider investing in firms committed to workplace safety, equal opportunity for career advancement, and giving back to their local community.

Governance (G): This refers to governance factors of decision-making including a sovereign’s policymaking to the allocation of rights and responsibilities among employees at various levels in a corporation, such as the board of directors, managers, shareholders, and stakeholders. Governance also evaluates the purpose of a corporation, the role and makeup of its board of directors, and compensation practices.

Why does RI matter?

From the rising concern of climate change to food scarcity in communities around the globe, there are several pressing issues facing our world today. In recent years, Canadians have shown a growing interest in investing their hard-earned money into companies committed to finding innovative solutions to the social, environmental, and governance issues they care about. With responsible investments, financial institutions are creating new opportunities for you to shake up your traditional portfolio to build a better future. For instance, the global pandemic tested how companies would navigate balancing their institution’s viability with maintaining employee safety.

Throughout the pandemic, Canadian institutions demonstrated their concern for employees by implementing measures to keep workers safe such as: supplying personal protective equipment (PPE) and offering paid time off to essential workers required to quarantine, which are social practices worth investing in for responsible investors. Similarly, financial institutions have adopted sustainable business practices such as offering members paperless banking statements, showcasing their efforts to reduce their carbon footprint while continuing to provide high-quality financial services. By switching to e-billing, you can pay your monthly credit card bill while reducing your paper waste. Now, that’s the best of both worlds!

What makes an investment “socially responsible”?

An investment is deemed socially responsible based on the type of product or service a business provides, and the nature in which they conduct business. To determine a company’s suitability a fund is evaluated using ESG criteria to discern if it fits within the scope from a sustainable development perspective. For instance, organizations that incorporate alternative energy processes, are committed to safe working conditions, or are open and transparent about their business operations when communicating with stakeholders would be considered a responsible fund and worth including in your investing basket. 

Will putting my money in responsible investments cost me financially?

For many of us, supporting socially conscious and ethical businesses is an integral facet of how we live our daily lives. From shopping for fruits and vegetables at your local market to only purchasing eco-friendly cosmetic products, your everyday purchasing decisions are rooted in making the world a better place. However, when it comes to investing, you may think supporting social causes might not yield the best financial results, but you should think again. Responsible investments have proven to perform just as well if not outperform traditional investments, making them a desirable investment option to meet your financial goals. This is because companies with a strong ESG framework resonate with responsible investors making them more inclined to ride out market volatility, and thus produce more stable returns. So now you can get competitive financial returns while still making a positive difference. That is a win-win.

How to build a responsible investment portfolio

Incorporating responsible investments into your portfolio doesn’t have to be a daunting task. Once you identify the values that matter to you, you can start using your money for social good.

Here are a few tips to help you build a purpose-driven investment portfolio:

1. Identify what causes you want to support 

Is ethical corporate leadership within an institution a cause that is important to you? Reflect your values in your investment portfolio. Before choosing what responsible investments to put your money towards, reflect on what values are important to you. Write a list of the causes you are passionate about to obtain a clearer picture of the type of organizations you should invest in. Taking the time to outline your values will help you select the right investments for you.

2. Research your responsible investment options and align them with your values

After choosing to invest responsibly, the next step is determining where to put your money. Take some time to learn about the organizations you are interested in investing in to ensure they align with your core values. Remember you do not have to tackle responsible investing alone. If you are unsure where to start, consult a financial advisor at your local credit union. Speaking with a financial advisor who holds a responsible investment specialist designation can help you gain a deeper understanding of this investment type so that you select the most suitable investments for your portfolio.

3. Start small and diversify your investments with the help of a financial advisor

When you choose to invest responsibly, remember to not put “all your eggs in one basket”. Like other investment funds, putting your money in responsible investments comes with financial risk. Being mindful of your risk tolerance and diversifying your portfolio can help you reduce your risk while attaining positive financial returns. Start by evaluating your income and current holdings to determine if adding responsible investments to your portfolio is the right decision for your financial future. Investing in responsible funds does not have to be costly you can start investing as little as $25 a month. Not sure how to diversify your portfolio? Not a problem. Speak with a financial advisor at your local credit union and review your values and financial goals, as they can help you pick out a mix of responsible investments to meet your short and long-term financial needs. By working with an advisor to diversify your portfolio, you can help you reduce your investment risk, and build wealth for the long term.

Start investing responsibly today…become a credit union member

Credit unions have been leaders of change since day one. With socially responsible investing first emerging in Canada with Vancity Credit Union, credit unions have a longstanding history of supporting the ESG movement as it embodies our core values. The rise of responsible investments in Canada reaffirms that this is not a temporary trend but rather signifies a shift that Canadians are looking for their money to have an impact beyond returns. Canada’s credit unions are leading the way by adding responsible investments to their product shelves, giving Canadians more opportunities to make a positive difference in our world and their finances. Credit unions are a great financial option to help you start investing responsibly, so you can build the financial future you want and feel good too. Not yet a credit union member? Find your nearest credit union, click here.