The task of evaluating socially responsible investments can be a challenging one for advisors. It’s a sector where approaches and innovations can vary widely, from the factors used to select securities to the level of active management. Which funds are truly providing the combination of values and solid performance that advisors are looking for when selecting ESG options for client portfolios?
To discover the fund providers that are going above and beyond with their approach to ESG, WP turned to readers, asking them to rate their favourite ESG funds based on five criteria: reflection of values, track record, fund manager performance, security selection and fees.
So what approach did the 5-Star Award winners take that made them stand out?
“We are very proud of our longstanding partnership with SRI pioneer Vancity Investment Management,” says Kos Lazaridis, senior vice-president, chief product officer and head of strategy at iA Clarington Investments, which was named a 5-Star winner for its Inhance Global Equity SRI fund. “We are gratified to see our trust and confidence in the abilities of this talented group of professionals rewarded with the WP 5-Star rating.”
Hugo Lavallée, portfolio manager of another 5-Star winner, the Fidelity Climate Leadership Funds, says, “I think we’re really hard to beat. We don’t have that many competitors that can bring what we bring to the table. I also like to think that success is due to having the right team as a whole here at Fidelity.”
Balancing values and performance
When it comes to what advisors factor in most when choosing an ESG fund, fund manager performance and reflection of values tied for the top spot – 91% of advisors said both of these criteria are either important or very important when evaluating ESG funds.
In an area like ESG, these two categories rely heavily on each other. Few know this better than Lavallée, who highlights how his own dedication to climate issues synchronizes with the values targeted by the Fidelity Climate Leadership Fund.
“The climate fund just launched in May,” he says. “It’s something that we’ve been working on for over two years. I initiated the process in Germany over two years ago by seeing how the world was changing around me – and I’m very sensitive to changing consumer trends in my investment funds. If you’re trying to build a global fund, you need global solutions for global problems. And we have lots of resources that we wouldn’t have if we were purely a Canadian-centric firm. Our director of sustainable investing is in Amsterdam. We’ve got people in Australia, in Japan, in China, in Singapore, in Europe.
“What I like to tell clients is, ‘Look, I think this fund is 100% the right thing to do.’ People often ask, ‘What return compromises do you think you’re going to have with a climate fund?’ And I say, ‘Why do you think we’re going to compromise on returns?’ To use a Canadian analogy, we’re skating where the puck’s going.
I don’t think we’re going to compromise at all on returns.
“My family has started paying attention to our carbon budget, and I want to do the same as a portfolio manager. I’d like to have a positive message about climate change. There’s a lot of negativity, and the outcomes are really bad if we do nothing about it. But I tell clients, ‘We need solutions to make a societal transition.’”
A passion for socially responsible investing, intertwined with a commitment to service, is something that’s also important to Adam Elliott, president, CEO and national sales manager at iA Clarington Investments.
“For over a decade, iA Clarington has championed the ethical and financial benefits of ESG investing,” he says, “and we are gratified to see that today, more and more investors are looking to SRI as a guiding light on their wealth creation journey.”
Jeffrey Adams, director and portfolio manager at Vancity Investment Management, which subadvises iA Clarington’s Inhance Global Equity SRI fund, adds that “our team-based, process-driven approach, coupled with the passionate commitment of our people to social and environmental responsibility, drives our success as a firm and the outcomes we’ve delivered to investors.”
Vancity and iA Clarington’s track record in socially responsible investing is an important point – 88% of advisors said track record is a critical factor when choosing an ESG fund.
Even more (89%) said security selection is important – and indeed, this is an area where fund providers often seek to differentiate themselves with their approach to evaluating ESG criteria.
In Fidelity’s Climate Leadership Funds, for example, “there are oil and gas names in the portfolio, but the reason is that they deal in carbon capture,” Lavallée says. “We’re really trying to build something in which somebody will look at all 50 names and say, ‘In terms of values, I can live with that.’”
Embracing the unknown
But what of the logistics behind ESG funds? Both a changing global landscape and a challenging industry climate have had a huge impact on fund providers – and in many cases, they’ve validated the inherent benefits of ESG funds.
“The challenges of the global pandemic have validated our long-held view that the risk mitigation characteristics unique to our multi-faceted ESG process enhance our potential to deliver superior long-term performance,” says Kelly Hirsch, head of ESG at Vancity Investment Management.
Given the surge in popularity of ESG funds over the past few years, what does the future hold for this sector?
“We expect this growing interest in ESG to accelerate as environmental, health and social crises continue to proliferate and inspire ethically minded citizens everywhere to become agents of positive change,” Elliott says.
Lavallée agrees that ESG funds are just getting started.
“It’s a journey,” he says, “and on that journey, we’re trying to get better. Dealing with a lot of the issues raised by ESG is a little bit like someone living in 1996 and experiencing the internet. So you know what the internet is – you might have ordered on Amazon or sent some emails – but you don’t fully comprehend how much your life is going to change over the next 25 years.”
To discover the best ESG funds in Canada, Wealth Professional reached out to its network of thousands of advisors across Canada. Beginning in June, WP asked advisors to name the fund providers who were delivering the best ESG funds based on a combination of values, innovation and performance.
Wealth Professional received a phenomenal response, meaning that the competition for a place on the list was very tough indeed. After reviewing all the entries, WP whittled down the list to 14 funds that received the best scores from advisors.