Let's start with a tough (but excellent) one!
"What are your thoughts on socially responsible investing? I feel like everyone has their own definition or understanding and that means we cannot all agree on a simplified solution."
This may take more than one blog to get deeper into the issues, but lets start at a high level and work our way into the key components.
Best to get to what is the more universal definition and where better to turn than the Responsible Investment Association (RIA), Canada's membership association for Responsible Investment. Members include mutual fund companies, financial institutions, asset management firms, advisors, consultants, investment research firms, individual investors and others interested in Responsible Investment.
Members "believe that the integration of environmental, social and governance (ESG) factors into the selection and management of investments can provide superior risk adjusted returns and positive societal impact".
Lots more here:
Brief History: In the 1990's the corporate social responsibility (CSR) movement emerged and leading companies around the world began measuring their performance on a wide range of sustainability and socially responsible policies and practices.
By the beginning of the 21st century, many corporate leaders had acknowledged that companies that measured and managed ESG as well as financial factors were more profitable. That growing consensus became a driver of sustainability or corporate social responsibility reporting in many companies.
- Climate Change
- Water Scarcity
- Supply Chain
- Aboriginal and Community Relations
- Say on Pay (Executive Compensation)
- Board Diversity
Our global benchmark index, from which we judge our portfolio performance for equity markets is the MSCI All Country World Index (ACWI). As it happens, MSCI also has an ACWI ESG Index. There are 1194 constituent companies in this index vs. 2480 in the ACWI index.
It is not within the scope of this blog to list all the companies in each, however if you peruse the top 10 holdings of each, you will be able to see a few of the companies that have been excluded (for example):
Interestingly, the 5 year comparative performance has the ACWI ESG better by about .5% (annualized), with a lower risk level (standard deviation) of about .5%. Better risk-adjusted returns for the AWCI ESG.
Obviously it still begs the question as to whether we are in agreement with what is considered "Responsible", but lets use this as an introduction and debate the deeper stuff in a forthcoming blog.
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And thanks in advance for sharing your thoughts and questions: very helpful!!