Andrew Simpson from iA Clarington tells WP how socially responsible investments can enhance a client's returns
Interest in socially responsible investment strategies has grown rapidly in recent years. More investors are realizing that their investments have a wider impact and with millennials taking an increasingly bigger share of wealth, industry experts expect flows into socially responsible investments to grow at an even faster rate.
Millennials demand to do things differently and advisors are being forced to rethink how they operate, and the investments they offer, if they want to remain relevant in the next 10 – 15 years.
“The demographic shift that is occurring is going to be very important for socially responsible investing because millennials can see the impacts – they are the ones who are going to be living through the climate change we are starting to experience,” says Andrew Simpson, a portfolio manager at IA Clarington Investments Inc. “They also have a much stronger sense of engagement with their investments.”
More investors are becoming aware of investment vehicles that have the potential to align personal values with portfolio allocations. Although Simpson is pleased with the progress made in recent years, he still sees knowledge gaps in large sections of the investor population.
“If people are asked whether or not socially responsible investment factors should be applied to their portfolios, I think most people would say yes to that,” Simpson, who manages seven socially responsible funds for iA Clarington, says. “The industry has come a long way, but those questions aren’t getting asked enough.”
A significant shift toward socially responsible investing is happening in the institutional market. Pension funds are now being asked by regulators whether or not they use environmental, social and governance factor analysis in their investment decisions. “It has become more main stream for institutional investors to incorporate socially responsible strategies, and that is a great thing,” says Simpson.
Socially responsible investments usually offer investors either a positive or negative screening option. A negative screen might exclude firearms, tobacco and gambling companies, whereas a positive screen might actively select companies who are trying to make a positive contribution to their community or environment.
“The socially responsible areas that we focus on are energy efficiency, renewable power and water scarcity - we think those areas have opportunities for companies to generate outsized returns,” Simpson says. “We are looking for industry leaders and companies who are the best in class and have a good sense about the needs of their key stakeholders. Companies that treat all of their stakeholders in a positive fashion tend to perform better in our view.”
Despite much evidence to the contrary, there remains the belief among some investors that following a socially responsible strategy means giving up on returns. Simpson describes that point of view as a “myth that should really be busted.”
“Certain strategies that we’ve applied to the iA Clarington Inhance SRI Funds, we feel have actually added to our performance,” Simpson says. “We view integrating socially responsible investing as a risk management tool. And, by avoiding risks in the marketplace you should be able to enhance your returns.”
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