In its early days on the investment scene, responsible investing focused on negative and positive screening – weeding out industries and companies with bad environmental, corporate and humanitarian records, and including those with positive ones. It has now moved beyond “sin” screening to focus on environmental, social and governance (ESG) principles, and RI investments may include industries once considered controversial.Best-of-sector screening rewards companies that are the best in their sector with progressive initiatives in environmental protection, supply-chain management and executive compensation, and creates incentives for other companies to improve their records. NEI Investments’ Ethical Funds, for example, considers 88% of the market cap of the S&P/TSX when investing in Canadian equities.
Responsible investing also includes the subcategories of ethical investing, sustainable investing, green investing, impact investing and social investing. Impact investing, in companies and organizations with the intention of generating a measurable social or environmental impact, along with a financial return, is growing in popularity. “Investors are starved for this,” Paul Richardson, chief executive of Vancouver-based Renewal Funds, noted at the 2014 Canadian Responsible Investment Conference in Toronto last month, but he said there aren’t a lot of impact products currently available for retail investors.
“RI can be done in all asset classes: equities, fixed income and cash,” added Sucheta Rajagopal, an investment advisor and portfolio manager at Jacob Securities Inc., “and through investment vehicles such as mutual funds, bonds, exchange-traded funds, pooled funds, real estate funds and private equity funds.”