How to match investments with your ethical values

ESG ratings are available for funds, stocks, and even for advisors.

Gail Bebee 11 June, 2018 | 5:00PM
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What investments can you buy that do not conflict with your personal ethics? How can you invest in a way that positively affects climate change, gun control, gender equality or other environmental and social issues you support? Are such investments higher risk? Do they yield lower returns compared to traditional investing?

If you are looking for answers to these questions, you are not alone. A 2017 survey by the Responsible Investment Association (RIA) found that 77% of respondents were interested in responsible investing, which is defined as the integration of environmental, social and governance factors (ESG) into the selection and management of investments. Coupled with this interest is a rapid increase in the responsible investments available to Canadians. At the end of 2015, the amount of assets in Canada managed according to responsible-investing principles, as per the RIA, stood at $1.5 trillion and had increased 49% over the 2013 total

"You can invest to create a positive societal impact, and receive a decent financial return," says Ron Robins, founder of "Numerous studies have demonstrated that companies with better ESG performance deliver superior risk-adjusted returns."

Among these studies is a 2015 review which found that Canadian socially responsible mutual funds delivered competitive returns, while reducing risk and providing better downside protection than traditional equity funds.

A 2016 survey of some 2000 empirical studies on ESG and financial performance determined that the large majority of these studies found that integration of ESG into the investment process has a positive impact on corporate financial performance, and this effect appears stable over time.

Investing in tune with your ethical values starts with learning the basics of responsible investing. This is an evolving area which encompasses such terms as ethical investing, socially responsible investing, sustainable investing, green investing, community investing, mission-based investing and impact investing.

The Knowledge Hub on the RIA website is a good place to begin your education. The CFA Institute Centre for Financial Market Integrity's Environmental, Social, and Governance Factors at Listed Companies - A Manual for Investors provides an excellent and detailed examination of ESG factors as they relate to investment management.

To find the ethical investments that best fit your personal values you need to clearly identify the values to be factored into your investment-selection process. Making a ranked list is a useful way to focus on what is important. Then, determine which of the ESG factors typically considered in responsible-investment analysis best reflect your personal values.

The next step depends on how you invest. If you work with, or are considering, a particular investment advisor, ask if she considers ESG factors when selecting investments. If she does, request details on the process, and make sure she is aware of the values you want factored into selecting your investment portfolio. If you are not satisfied with the advisor's approach to responsible investing, you may want to consider hiring an advisor with a Responsible Investment Advisor designation. You can search the RIA website for Canadian advisors who are so qualified.

If you prefer an online investment manager (robo-advisor), seek out firms, such as ModernAdvisor and Wealthsimple, that offer socially responsible portfolios. Before signing up, conduct due diligence to confirm that your values are addressed appropriately.

The Morningstar Sustainability Rating compares mutual funds and ETFs based on how the companies they hold manage ESG issues. Funds holding at least 50% of their assets in companies given an ESG rating by Sustainalytics are rated. A fund receives one of five Sustainability Ratings ranging from low to high, based on how it compares with its category peers. For example, Beutel Goodman Canadian Equity Class D earned an Above Average rating in the Canadian Equity category.

Some funds are specifically marketed as responsible investments. For example, iShares Jantzi Social Index (XEN) holds companies that belong to the Jantzi Social Index, an index of 50 Canadian companies that meet broad ESG criteria. This exchange-traded fund has received the top Sustainability rating from Morningstar.

The Responsible Investment Association publishes a quarterly performance report that includes Canadian mutual funds, ETFs and retail venture-capital funds that use ESG criteria to select investments. Other funds may not be marketed under the responsible-investing umbrella, but still match your personal values.

ESG information is available from various other sources, including the companies themselves, to help you choose individual stocks that mesh with your personal values. Companies that integrate ESG factors into their operations want to tell stakeholders about their efforts. Their websites typically offer detailed information on their ESG performance. For example, under TD Bank's Corporate Responsibility tab, you will find an annual Public Accountability Statement and an annual corporate-responsibility report.

Yahoo Finance has recently added a Sustainability Rating to the online profiles of some companies. Separate ratings are provided for ESG factors along with a total ESG score and a performance comparison with peer companies.

RobecoSAM, a company focused exclusively on sustainability investing, publishes a sustainability yearbook which ranks more than 900 companies from around the world (including a few from Canada) on ESG factors that are relevant to their success. The leading companies in each industry sector are awarded gold, silver or bronze status.

Discount brokerage Scotia iTrade's sustainable investing tools allow a client to develop a personal sustainability profile and then compare a company's ESG performance with the profile. Both Scotia iTrade and Yahoo Finance source their ESG data from Sustainalytics.

Investors who want to invest in a way which meets their personal values and financial goals have a growing choice of options. Socially responsible investing offers one more way for an individual to work toward a better world.

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About Author

Gail Bebee

Gail Bebee  Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at; her website is

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