Photograph by iStock
Do investors need to give up higher returns to invest ethically? Not a chance.
Contrary to popular belief, it’s possible to make money and make a positive impact on the world, and responsible investing is the perfect place to start.
Jay Christensen, CFP, RIS, is a wealth planning specialist with Valley First Investment Services, and a licensed advisor with Credential Qtrade Securities Inc. He says responsible investments routinely outperform their counterparts.
“In 2018, with US and global markets turning in negative returns, more sustainable funds beat the index than non-sustainable funds,” he says. “In the United States that amounted to 40% vs. 25% and globally 52% vs. 35%.”
According to Morningstar, as of December 31, 2018, sustainable funds outperformed their peers in their respective categories over one, three and five years.
“Not only does an investment approach that incorporates environmental, social and corporate governance (ESG) help to grow your investments, the Morningstar research also demonstrates that ESG companies tend to be lower-volatility, higher-quality companies that hold up better in difficult market conditions,” Christensen says.
ESG offerings typically avoid bond and equity issuers involved in nuclear power, alcohol, tobacco, animal testing, weapons and other areas. Companies vying for investor interest are expected to be good environmental stewards, treat employees well, create sustainable, healthy products and stay clear of shady or predatory business practices.
Research confirms taking a stand is a lucrative investment strategy. Harvard Business School studied more than 2,300 firms in 2015 to test the theory. The results confirmed that companies that committed to and invested in strategic sustainability efforts had higher risk-adjusted stock performance, margins and sales growth—and that these efforts were driving business value.
It’s time for investors to challenge the assumption that investing for any reason beyond shareholder value will result in poor outcomes, Christensen says.
“The vast majority (roughly 90%) of studies show that investments that incorporate ESG analysis outperform non-ESG investments in the long term,” he says. “This is probably why such a large portion of the financial industry is switching over to ESG strategies.”
Valley First Investment Services is a division of First West Wealth Management Ltd.
Learn more about Valley First Investment Services and responsible investing at www.valleyfirst.com/RI.
Follow author Jay Christensen on LinkedIn.