Investors nowadays want to see their money make a difference in ways that positively impact both the world and their bottom line. This is no fad. It’s a global phenomenon that's affecting individual investors, small and large companies, corporations, pension funds and governments.
There are two primary avenues of investment, which overlap somewhat and share the common goal of directing your money towards a positive global impact. Even so, there are a few differences between them that give you options.
Both Environmental, Social and Governance (ESG) investing and Socially Responsible Investing (SRI) are gaining traction with the growing demand among investors to make their money work not only for them, but for others. Consider it as investing with both your heart and your head, and sometimes one leads more than the other.
Earn capital while weighing environmental, social and governance factors
ESG uses traditional financial analysis when assessing an investment and layers an additional screen onto it: the consideration of environmental, social and governance risks. Giving you a wider lens through which to view targets for your money.
ESG aims for value using additional tools that go beyond traditional financial analysis. With ESG, the financial outcome largely matters more than the social, though ESG considers both within the process of assessing an investment.
ESG aims to achieve the best financial return while always paying close attention to environmental, social and governance factors that might affect it.
You may be considering an energy company that still produces fossil fuels but is making a sharp pivot towards developing greener alternatives, for example. ESG would consider, among other items, what the horizon might be for the greener energy aspect of the business to become profitable, how the company handles potential toxic waste or gases, how the corporate rules and government laws that influence its operation will play out, and so on.
Make personal, ethical choices with SRI
ESG factors are considered in SRI, so they're very closely related, but SRI deals more directly with your own value system.
While many investors favour products and services that reflect their values, they’re also seeking financial gains. Some simply want the best bang for their buck regardless of whether or not the investment is aligned with their values. For example, they have a friend who can’t quit smoking, but they invest in a tobacco company anyway because they know they’ll get good returns.
The key differentiator for SRI is that it's ethical or values based. You use your own values as the primary lens to evaluate potential investments.
SRI generally screens investments in companies or funds that align with the investor’s values and excludes those that aren’t a match. So, in the case above, steering money into a tobacco company wouldn’t be an option, despite a potential financial payoff.
As you screen or exclude as an investor, you can see your money flow into outcomes that you find socially and environmentally meaningful and beneficial to the wider community.
Make an impact
Impact investing is a third form of responsible investing, blending aspects of SRI and ESG while focusing on achieving social or environmental benefits. For instance, you may value developing environmentally sustainable housing projects in poor communities, so you could direct your money into funds that encourage them.
Servus is a member of the Responsible Investing Association (RIA) which means we have advisors who hold their Responsible Investing designations.
Though NEI Investments, Canada's Responsible Investment leader, our members have access to a wide range of responsible investments and the opportunity to make money while making a difference.
Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. NEI Investments is a registered trademark of Northwest & Ethical Investments L.P. Credential Securities is a registered mark owned by Aviso Wealth Inc. Credential Asset Management Inc., Credential Qtrade Securities Inc and Northwest & Ethical Investments L.P. are all wholly owned subsidiaries of Aviso Wealth Inc.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured nor guaranteed, their values change frequently and past performance may not be repeated.