Nobel laureate Bob Dylan was certainly right: The times they are a changin’.
And that’s particularly applicable to responsible investing (RI) — formerly known as socially responsible investing, ethical investing or sustainable investing.
It used to be this strategy, which involves using environmental, good corporate governance and social justice filters to choose investments, often resulted in an eye-roll among members of the investment industry.
It’s well-intentioned for sure, but if you’re in the business of making money, why would you choose a strategy that won’t make as much money as one that isn’t green?
But that’s changing, indeed. A case in point is a recent report by one of Canada’s leading wealth management firms specializing in responsible investing.
You might not have heard of Genus Capital Management, but you’ve heard of one of the company’s clients: the David Suzuki Foundation. Because the Vancouver-based company represents investors such as the foundation that the firm launched fossil-fuel-free investment strategies three years ago.
And its recent Fossil Fuel Divestment Report indicates this approach can outperform those that include oil and gas firms, pipelines and other large contributors to climate change.
"Over the three-year period our equity portfolio — the Fossil Free CanGlobe Equity Fund — was up 62 per cent versus the benchmark that was up about 50 per cent," says Wayne Wachell, founding partner and chief investment officer with Genus.
Of course, that’s not a tall order considering oil and gas have fallen off a cliff of profitability since 2014. But the company ran a simulation of its portfolio going back six years and then 20 years, and the results were similar.
"The 20-year study shows that going fossil-free doesn’t hurt your performance," he says. "You actually get better returns in the marketplace, believe it or not."
Believe: It’s something even the investment industry has had difficulty doing.
That too is changing, says certified financial planner Mary Ann Kokan-Nyhof with Desjardins Financial Security Investments in Winnipeg.
"In our industry we weren’t actively interested," she says. "It was peripherally there but we didn’t have a reason to push it. It takes a while for people’s eyes to be opened, including us as advisers."
And indeed responsible investing is front of mind for professionals, too — at least for Desjardins, which is hosting two free events this coming week in Winnipeg.
Called "Save your money; save your planet" the two seminars on Oct. 25 at the Qualico Family Centre at Assiniboine Park offer people a basic primer on investing with a green filter.
"It’s to dispel some of the myths. And the big one is that if you do it, you’re not going to make as much money as you otherwise would," she says. "The event is not focused on Desjardins funds. The seminars are not even about mutual funds. They’re about responsible investing and educating the public on what it is."
A leading expert in responsible investing from Desjardins will be speaking at both seminars.
Rosalie Vendette is the senior responsible investing adviser for Desjardins, a leading firm in environmentally and socially conscious investing.
The Montreal-based adviser says responsible investing comes in many forms and doesn’t necessarily entail going fossil-free — as Genus has done.
"It’s a little bit like going to different Italian restaurants," she says. They may all have lasagne on the menu and the recipes may be similar, but each one is a little different.
Desjardins itself has a suite of 10 responsible investment funds involving different approaches. Its three newest offerings — Desjardins SocieTerra Cleantech Fund, Desjardins SocieTerra Environmental Bond Fund and Desjardins SocieTerra American Equity Fund — actually don’t contain oil and gas firms.
"With the American equity fund, the portfolio manager rates all the companies in the U.S. on the Russell 3000, either A, AA or AAA, and that leads to only having sustainability leaders," Vendette says. "As it turns out, they don’t have any energy because there are no sustainability leaders in that sector."
(The green bond fund provides loans to clean energy projects while its cleantech fund puts money into companies developing alternative energy and related technologies.)
Yet, many other RI funds employ strategies that do include energy firms — those addressing climate change, among other issues of concern.
Often RI managers will engage these companies, asking them to go even further. "We contact the board of directors to communicate the concerns we have and even ask for change," Vendette says.
This can lead to RI managers bringing resolutions to vote at annual general meetings for energy companies. A recent example, Vendette adds, is when the company partnered with NEI — Canada’s largest RI mutual fund firm — to get Suncor to make public its plans for a low carbon future.
"The board looked at the shareholder proposal and decided to support it," Vendette says, adding the resolution received 98 per cent support from shareholders.
Vendette also sees responsible investing moving more toward divestment of energy firms as climate change concerns increasingly overshadow everything we do.
"There is a growing interest for divestment, which is almost equivalent to going fossil-free, and we’re having conversations with our clients about their interest in these strategies."
Wachell says divestment isn’t just a matter of choosing an investment strategy that is good for the planet. It’s also a risk issue for long-term investors. And that’s a point of argument the firm has had difficulty convincing its own clients of because as institutional investors they often think it’s the opposite.
"The push back we get is that foundations can’t go this route because they have a fiduciary duty to invest in everything and for them. Green investing might give up return, so it’s more risky in their eyes," he says.
But Wachell says energy companies do entail a lot of risk because a tightening regulatory environment for climate change as well as efforts to develop clean energy technology may turn them into stock market dinosaurs in coming decades.
"With all the impending climate action taking place globally, a lot of their fossil-fuel assets could be stranded and that’s already having an impact on behaviour in the marketplace," he says.
He cites Saudi Arabia as an example of a large sovereign investor with the world’s largest oil assets seeing the writing on the wall. It’s selling a stake in its state oil company, Saudi Aramco while appointing a minister for post-hydrocarbon world and spending $2 trillion on shifting its economic reliance off oil.
"They’re divesting of fossil fuels and investing in clean tech."
Even if oil still turns out to be a profitable investment for the long-term, Wachell believes going fossil-fuel-free will still reward investors.
"If hydrocarbons continue to play themselves out over the next 40 years, this strategy will still do fine because you can invest in other sectors that don’t contribute to climate change and do just as well if not better."