3 ESG investment strategies: passive, integrated and active

Of the three, the integrated strategy offers the best of both worlds – superior ESG rating and better financial performance, finds a PWL Capital study

Yan Barcelo 6 February, 2019 | 6:00PM

In ESG investing (Environment – Social – Governance) a large majority of investors are – unknowingly – passive. An increasing number adopt an “integrated” stance. Very few are “active”. Those are the three categories with which ESG ETFs can be analysed and selected according to the recent Guide to Responsible Investing – Doing Well by Doing Good, written by Raymond Kerzerho, Peter Guay and Marc Brodeur-Béliveau of PWL Capital.

“Prevailing trends are favorable to ESG funds”, says Raymond Kerzérho, director of research at PWL Capital in Montreal. Numbers bear him out: Canada stands as a world leader with more than $1.5 billion ESG assets under management.

The authors examine each investment approach, and along the way, explain the false ideas and misunderstandings that have lead many to believe that ESG funds deliver inferior returns compared to traditional funds.

For the passive investment approach, returns trump ESG considerations. The manufacturers of such ETFs, like BlackRock, State Street and others, call on advisors, usually external and independent, to choose the assets that will make up the fund. Furthermore, calling on their major shareholder powers, they strive “to have discussions with boards and management so as to improve ESG profiles of companies in areas that could potentially have negative risk/return impacts on shareholders,” write the PWL authors.

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About Author

Yan Barcelo  is a veteran financial and economic journalist with more than 30 years of experience, writing for many publications in Toronto and in Montreal, including CPA MagazineLes Affaires and Commerce.

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