How and why has RI evolved?

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Responsible investing (RI) has changed over time — but not the broad goal.

Originally, RI revolved around the investment strategies used by foundations and different institutional funds. This approach excluded certain industries, geographic areas or companies that didn’t fit with their stakeholders’ moral beliefs.

Then, RI was made available to retail investors, with deforestation and the destruction of the ozone layer among the first issues addressed.

Now, RI is more about selecting investments that are financially sound, and best in class in environment, social, and governance (ESG) criteria. Companies that do well in these areas demonstrate care for their employees, clients, suppliers, communities and world around them.

Increasingly, people are looking for investments with good growth potential that are also consistent with their personal vision and expectations. RI offers both.

More recently, fund mandates started including companies that have a more direct impact on ESG issues, or that bring solutions to help solve these issues.

What has changed, too, are attitudes, with RI more widely embraced. Still, some misconceptions persist on the part of advisors and investors.

Growing returns, diversification and client interest

Some believe RI offers lower returns then traditional investments. Not true. In fact, studies¹ show that ESG integration has a neutral or positive impact on performance. RI funds tend to be strong overall performers.

Another myth is that these investments have a narrow focus. But RI isn’t only about excluding, which can be black and white. At its core, RI is about including companies across all sectors of the economy — ones that excel in the fundamentals and in ESG areas.

The RI universe is broad, too. Today, there are more choices and funds than ever, and more nuanced data on which to make investment decisions.

Your clients are eager to learn more. A 2019 survey² from the Responsible Investment Association (RIA) found that 72% of Canadians want to hear about RI, up from 60% the year before.

Moreover, the vast majority (79%) of respondents said they’d like their financial services provider to inform them about responsible investment products that are aligned with their personal interests.

A lot of people still don’t know enough about RI. As soon as they do, they’re interested. Learning about RI options and sharing that information can help clients make informed investment decisions.

For its part, Desjardins was involved in RI early, at the beginning of the 1990s. One of the main changes we’ve seen is a shift in the shareholder-first motive. Now companies are more focused on serving all stakeholders, of which shareholders are just one part.

RI has grown not just because of investor interest, but because companies understand that solid ESG practices are smart for business. For businesses, paying attention to ESG isn’t an expense, it’s an investment. It can make a company more durable and better able to navigate unpredictable occurrences (like our current pandemic).

That’s what matters to investors. When companies care about the well-being of their employees, supply chains, clients, and communities — as well as their shareholders — it’s good for the bottom line.

Deborah Debas Responsible Investment Specialist with Desjardins Group

To learn more about Desjardins RI solutions, visit https://www.desjardinsfunds.com/ri.

Desjardins is a trademark of the Fédération des caisses Desjardins du Québec, used under licence.

¹ https://www.unepfi.org/fileadmin/events/2018/sydney/ESG-and-Corporate-Financial-Performance.pdf ² https://www.riacanada.ca/research/2019-ria-investor-opinion-survey/