3 reasons for adding responsible investment to a group savings plan
Between health crises and climate change, global challenges are mounting. For several years now, these issues have made eco-conscious people more interested in responsible investment (RI)1.
So, it's no surprise that approximately 80% of Canadians would like their investment portfolio to be invested in companies that are providing solutions to reduce CO2 emissions2.
At Desjardins, there's growing interest in this type of investment.
"Between 2021 and 2022, assets under management in group retirement savings plans that incorporate ESG criteria have doubled. This number was also up in 2023.
- Charles-Antoine Larochelle, Manager, Investment Solutions at Desjardins Insurance
ESG: An acronym that matters
Responsible investment isn't new. Desjardins began offering its first fund over 30 years ago. In 2006, the United Nations (UN) launched the Principles for Responsible Investment (PRI). In September 2015, the 193 countries of the United Nations unanimously adopted 17 Sustainable Development Goals External link. This link will open in a new window.. These goals are a worldwide call-to-action to protect the planet and end poverty by 2030, among other things.
These initiatives have helped us establish a frame of reference by incorporating ESG criteria:
- E is for Environment
- S is for Social
- G is for Governance
From an investment perspective, that means taking these criteria into account when evaluating and selecting investments. These criteria provide a useful framework for assessing an organization's practices and fiscal outlook. The argument for RI is that in the long term, companies that stand out for their solid ESG practices have better financial performance than companies in the same sector.
Why should we choose RI funds?
1. To keep pace with the green transition
In 2022, more than $1.1 trillion was invested in different energy transition sectors. This resulted in renewable energy investments reaching parity with fossil fuel investments for the first time3. RI benefits companies that adopt energy efficiency measures and offer solutions to help ease the transition. In addition, renewables have outperformed oil and gas in 7 out of the past 10 years4.
2. To make long-term investments in high-quality, profitable companies
ESG criteria can provide signals for risk management and help identify companies that are less likely to face economic turmoil or major bankruptcies5.
ESG best practices can help companies be more efficient, increase their brand capital and help them stay competitive in a rapidly changing world.
Investing in these well-positioned companies provides opportunities for sustainable growth in the long term.
3. Because ESG issues are going to persist, whereas inflation is a short-term issue
While inflation has left a strong impression on us last year, the associated problems will go away sooner or later. In the medium and long term, issues like inequality and climate change will persist and affect the returns of companies that aren't prepared to deal with them. Investing in companies that adopt robust ESG practices could help improve their long-term performance while reducing certain key risks.
Currently, responsible investment represents 47% of Canadian assets under management6. Despite last year's economic turbulence, interest in RI isn't waning, including for personal members.
As you've probably gathered, choosing RI funds in group retirement savings plans provides plan members with sustainable growth opportunities and better risk management.
"In 2022, the Canadian fund market lost 12% of its assets, while the RI fund market gained 7%7. Despite the volatility, investors didn't sell their RI funds en masse to find safer investments elsewhere. They've stayed the course. Responsible investing is basically just investing. There wouldn't be a market for it if we didn't have sound risk management and a good outlook for returns."
- Deborah Debas, Senior Advisor and Responsible Investment Specialist at Desjardins.
How can we update our plans?
You don't need to change everything in the existing plan. The key is to get informed so that the transition goes smoothly.
First, you could start a conversation with your group retirement savings (GRS) partner, who's responsible for supporting you
"An employer can start by evaluating the funds they offer to their employees and consider how they're ranked in terms of ESG. Next, they'll need to assess the current situation with help from their GRS partner. As an employer and plan sponsor, they need to think about their values and objectives, and then consider all the possible options."
- Charles-Antoine Larochelle, Manager, Investment Solutions at Desjardins Insurance
Some options to consider:
- Add one or more RI funds to your plan’s "à la carte" fund lineup, and give plan members the option to add them.
- Allocate a large portion of your portfolios to RI funds*, and maybe replace some traditional funds with these RI funds.
- Consider adding Lifecycle Paths or funds, or RI target date funds*.
You can now help build a sustainable future while helping your employees grow their money over the long term and standing with them on global issues.
Feel free to speak with your GRS partner for help on preparing for the transition. For more information, you can consult the Desjardins Insurance website.
* You don't need to re-enrol your employees in the plan. Group retirement savings providers can help employees find equivalent funds based on their initial choices.
Sources:
1. Sustainable Investment Report External link. This link will open in a new window., Schroders, 2019
2. RIA Investor Opinion Survey, AGF Investments Inc. and Desjardins Group, 2021
4. "5 Questions About Sustainable Investing" External link. This link will open in a new window., Morningstar, June 17, 2022
5. ESG Matters – US (moneyinvestexpert.com) External link. This link will open in a new window., Bank of America Merrill Lynch, September 23, 2019
6. Responsible Investment Association | 2022 Responsible Investments Trends Report External link. This link will open in a new window., 2022
7. IFIC, 2022 Investment Funds Report External link. This link will open in a new window.