Understanding a company's competitive advantage is key when looking at ESG stocks: Portfolio manager
TORONTO -- The heightened public awareness of social issues brought about by the COVID-19 pandemic and high profile movements such as Black Lives Matter and .MeToo has begun to affect the way younger investors think about how they spend their money, experts say.
When it comes to responsible investing -- which takes environmental, social and governance (ESG) factors into consideration -- investors are starting to ask, "who are the people behind the companies they invest with, and what are those people doing to help other people," said Joss Biggins, an investment advisor at EthicInvest, which operates under the umbrella of Leede Jones Gable Inc., in Vancouver.
While many of Biggins' clients across generational lines share similar values when it comes to responsible investing, his younger clients do seem to be at the forefront asking how their investments can help change the world.
" 1/8Social issues 3/8 are pervading the cultural narrative more than they probably ever have in the past," said David O'Leary, founder and investment consultant at Kind Wealth in Toronto.
However, he said that social issues more often affect how people spend their money, as opposed to how they invest.
This can be due to a lack of knowledge around their responsible investing options, and that finding the right financial professionals to help them in this area can be difficult, O'Leary explained.
When looking for an investment professional to help you make a social impact, Biggins recommends visiting the Responsible Investment Association's (RIA) website and searching their directory of responsible investing advisers.
Biggins said to also ask your adviser if they have comprehensive knowledge on what the "S" in ESG stands for, Biggins said, adding that most don't know.
"I would recommend asking for specific examples of a company's social related initiatives," Biggins said.
"When we are looking at how socially responsible a company is, it is better to look for companies that are actively providing solutions. We can gather data on company values and approaches to problem solving if we attune to their language and the way they communicate their objectives," Biggins said.
For example, look for companies that focus on answering questions like "how do we empower our employees to experience better, more fulfilled lives and careers?" Biggins said. That's better than a passive or avoidant approach from companies, along the lines of statements like "we are aware of some social concerns and are doing our best to work with our labour union to resolve them," Biggins said.
Biggins added that investors should note that there's a difference between companies "not doing wrong" and companies who are consistently investing in the growth of people both inside and outside of the organization. "There are parts of ESG which we need to lean on our intuition, 1/8and 3/8 this is one of them," he said.
For young people not yet able to work with an investment adviser but who have a pension plan or group RRSP through their employer, there's also an opportunity to push for investments that go toward social good that way, O'Leary said.
In many cases, company pension plans or group RRSPs don't include responsible investment offerings, O'Leary said. He recommended that employees ask their HR department for this to change.
"If 50 per cent of your workforce is all of a sudden asking for responsible investment offerings for your pension, you can be sure they're going to start to respond. But, if it's only a handful of people, it's easier to brush it off," he added.
There are also free online resources with sustainability and social investing information on mutual funds and ETFs. For instance, Morningstar provides a sustainability rating on funds and also shows how they score when it comes to social factors, alongside environmental and governance factors, O'Leary said.
Another example is a U.S. site As You Sow, O'Leary said, which has online tools that can help users understand if their investments are aligned with their values.