4 myths about responsible investment

Even though 65% of Canadians are interested in responsible investments,¹ there are still some lingering misconceptions. Let's bust the top 4 myths about responsible investing. 

Probably the most common misconception is that choosing responsible investments means making a trade-off on returns. Some investors think adopting strong environmental, social and governance (ESG) practices hurts returns.

But in fact, that's not true.

Sound ESG practices can help companies mitigate risk and improve their financial performance. For example, a company that cares about its employees' well-being will have less turnover, which is likely to increase productivity. And a company that proactively manages climate change risk and adapts its facilities will be better prepared for extreme weather events.

As with any investment product, short-term performance for responsible investments largely depends on economic conditions, politics, and other factors. Some fluctuation is normal. However, most studies² show that in the long term, responsible investments perform just as well as comparable traditional investment products.

Responsible investing has been steadily growing in popularity since the United Nations launched the Principles for Responsible Investment in 2006. That landmark framework made it easier for big investors to align their practices.

Data shows that appetite for responsible investment has held up despite all the polarization and economic disruption we've seen in recent years. As a percentage of all professionally managed assets in Canada, responsible investment's market share rose from 47% in 2021 to 49% in 2022.³

Climate change is now a major driver of economic disruption, and the transition to more sustainable economic activities has created attractive investment opportunities. Changes to legislation and public policy are also paving the way. For example, some governments have committed to reducing carbon emissions, imposing a carbon tax, banning single-use plastics and investing in clean energy infrastructure. These types of commitments inevitably affect consumer demand for environmentally responsible and/or local products. If you choose responsible investments, these changes create opportunities to grow your assets. 

Responsible investments are available around the globe and across all categories of financial assets and investment products. They're just as diversified as traditional investments.

In order to be selected under a responsible investment strategy, companies must first undergo a review of their environmental, social and governance (ESG) practices. Of course, there's also a rigorous financial analysis to make sure the investment delivers value. Many specialists believe that responsible investment strategies are actually better at managing risk because they incorporate such comprehensive analysis. So responsible investing definitely isn't riskier than the traditional approach.

Responsible investment strategies have become much more sophisticated and diversified over time. Investors are asking companies across all sectors to do more on ESG issues, which broadens the potential for responsible investing to have a positive impact on the market.

Responsible investing uses ESG criteria to channel investment into businesses in all sectors that can help mitigate environmental and social issues by improving their operations. They can also make a positive contribution through their operations and the types of products and services they offer.

Our advisors are always available to answer your questions and help you make investment decisions. For more information or to find responsible investment products that are right for you, contact us online or by phone.