4 myths about responsible investment
64% of Canadians would put their money1 into responsible investments (RI)2. While it may seem that making money on your investments while doing something meaningful for the future of our planet is well understood, there are still some misconceptions about responsible investing. Here are 4 persistent myths about RI along with arguments demonstrating that they’re just myths!
Myth 1: RI products provide lower returns than traditional investments.
The presumed compromise between RI and return on investment is probably the most widespread misconception. Some investors believe that adopting robust environmental, social and governance (ESG) practices jeopardizes returns.
But the facts show that RI strategies don’t compromise returns … and can even increase them in the long run. Nowadays, you no longer have to sacrifice returns in order to invest in RI according to your convictions.3
According to Marie-Justine Labelle, a Desjardins responsible investment director, “Choosing RI doesn’t mean compromising on long-term performance. In fact, an analysis of over 1,000 studies published from 2015 to 2020 showed that most of the time RI funds had equivalent or superior returns compared to traditional funds.”4
Myth 2: Responsible investment is a passing trend and accounts for a small market segment.
The popularity of RI has grown continually since the United Nations launched the Principles for Responsible Investment (PRI) in 2006 to promote consistency in the practices of major investors.
Responsible investing has increased even in Canada. The assets held accounted for 61.8% of all Canadian assets under professional management in 2020, compared with 50.6% 2 years earlier.5
Climate change is now a major source of economic disruption, and the transition to more sustainable economic activities has given rise to attractive investment opportunities. This transition relies on several factors, including changing consumer demand (for example, increased sales of electric vehicles, preference for locally manufactured products, bans on plastic straws or the popularity of plant protein). Another transition factor is changes to legislation and public policies. Some good examples are governments committed to reducing carbon emissions, taxing carbon, banning single-use plastic products or investing in clean energy infrastructure. These changes create opportunities to potentially grow your assets by investing in sustainability.
Myth 3: Responsible investments target companies in an overly narrow way and the choice of companies is limited, which increases risk.
To be selected for an RI strategy, companies must undergo a review of their environmental, social and governance (ESG) practices. Of course, they also undergo a comprehensive financial analysis in order to offer investors an investment solution that delivers value. Several experts believe that risk management is more effective in RI owing to the integration of assessments of companies’ ESG practices. Since risk assessments are more comprehensive, RI cannot be considered as carrying greater risk than traditional investments.
Responsible investment strategies are tremendously well developed and diversified over time. Investors require companies to do more in terms of ESG across sectors of the economy, which increases the potential for positive spinoffs from RI in the market.
Myth 4: IR shareholders have no vote.
Shareholders in responsible investments have a voice and are making themselves heard through their shareholder engagement. By giving priority to companies that take action to resolve environmental, social and governance issues, RI managers can engage in a dialogue with them to encourage them to initiate actions that create measurable positive impacts.
In 2020, Desjardins and its fund managers met with 226 companies to help improve their ESG practices. These discussions can really move things along. Find out more: 2021 Annual Report on Responsible Investment - Desjardins Funds.
For example, discussions were initiated in 2018 with 2 industrial gas companies to encourage them to reduce their greenhouse gas (GHG) emissions. Since that time, the 2 global giants have:
- Increased their GHG reduction targets for the coming years
- Implemented strategies for transitioning to renewable energy
- Invested in clean hydrogen research and development, which can ultimately replace coal, gasoline and natural gas in industry and consumer markets
Leave the myths behind and move on to RI!
Our advisors are always available to answer your questions and support you in your decisions. Contacts us online or by phone to obtain more information or to start investing in responsible investment products.
1. The amount of Canadians who would definitely, very probably or probably invest.
2. March 2021 survey of Canadians on responsible investing. Desjardins Research and Innovation Department.
4. Whelan, Tensie et al. ESG and financial performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015 - 2020, New York University & Rockfeller Asset Management, 2021.
5. Responsible Investment Association (RIA), 2020 Canadian RI Trends Report, November 2020.