Back to School: ESG 101

How both you and the environment win when you choose sustainable investments, with Ian Tam and guest host, Sophie Joly

Ruth Saldanha 1 September, 2020 | 12:02AM

 

 

Sophie Joly: Hello, my name is Sophie Joly. And today, I'll be talking to Ian Tam about whether investing can help stop climate change. Hi, Ian.

Ian Tam: Hi, Sophie.

Joly: Why is climate change becoming a more important issue for investors?

Tam: Yeah, Sophie. Thanks for asking that question. It is a great question. But first of all, climate change is not just important to investors but it's important to everybody as we start to realize that the temperature of oceans and the earth are rising, and we can actually start to see some of the effects happen around us. Now, for investors, it's particularly important as people are starting to – investors rather are starting to realize that where they put their money can actually affect the types of companies that are growing in our economy or in our climate. So, as investors start to realize this, they may start to think about investing in some companies, perhaps ones that are reducing their greenhouse gas emissions or reducing their carbon footprint as opposed to others that may actually be contributing to global warming. So, the first thing is that investors are starting to realize that that option is available to them.

The second thing that investors are thinking about right now in terms of climate change is that perhaps not investing in certain companies might actually hurt their portfolio of returns. Now, at Morningstar, we've actually done a lot of research on this topic and we've actually found that at least over the last 10 years investing in a sustainable way doesn't actually hurt your risk or your returns. So, if you're an investor and you choose to invest in a sustainable way, know that it's not detrimental to your investment returns over the long term.

Joly: What are some ways in which managers decide to invest for climate change?

Tam: Yeah. So, there's a couple of different ways that managers can seek to help the whole climate change phenomenon I suppose. One is that they may choose to engage with company management. So, if I'm a portfolio manager at the companies I invest in, I will actually actively have conversations with the management of that company to help them improve their corporate policies around things like greenhouse gas emissions and carbon footprint. You can also do this through proxy voting. So, whenever a big company decision is made, often a vote goes out to all their shareholders. So, as a portfolio manager and a shareholder I can choose to vote in a very specific way, again, to help the cause of climate change.

The second way that portfolio managers or investment managers can help climate change is simply to look for companies that have better corporate policies around those topics.

Joly: Why is climate change important in a country like Canada?

Tam: Yeah. So, Canada is a pretty unique economy in that I think about 10% or 11% of our GDP actually comes from the oil and gas sector, which of course, we know doesn't necessarily help climate change. But as we steer towards a carbon neutral or even a carbon free economy, we have to be very careful in the way that we do that. So, we simply can't pull all of our assets, all of our investments away from the oil sands because that would be detrimental to a lot of the employment in Canada. So, it has to be very thoughtful in the way we do that and certainly, investing using some of these techniques might help towards that goal.

Joly: Thank you for your time, Ian. For Morningstar, I'm Sophie Joly.

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Ruth Saldanha

Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca

 

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