What is your group’s history with responsible investing?

For more than 30 years, the SRI Wealth Management Group has helped clients to achieve their financial objectives while driving positive social and environmental impact. We are one of the leading financial adviser teams in the country exclusively focused on sustainable, responsible and impact investing (SRI). Our clients want to receive top-quality investment advice and believe their investments are an extension of their mission. We guide our clients through financial uncertainty and can help them to concurrently meet their long-term financial goals while making investments that are in alignment with their organisation’s or personal values.

Our mission is to advance social equity and environmental sustainability using capital markets. While legal or government policy seek to make a change, too often such means can be slowed down by political gridlock. Investors can often have a swifter impact on companies and their behaviour. How often have we seen market valuations be negatively impacted by environmental fines, product recalls or poor management decisions?  We have also seen that companies that have strong labour practices, mitigate environmental risk and pay attention to good corporate governance are quickly rewarded in the financial markets.

Today we consult on approximately $3 billion of assets, all of which are ESG integrated and focused on sustainable investments. In addition to our scale, we have over 30 years of experience in responsible investing starting in 1984, well before responsible investing started to pick up mainstream attention. We have been at the forefront of important social equity and environmental movements: apartheid, LGBTQ+ rights, divesting from fossil fuels and reinvesting in the clean energy economy and racial / gender equity. Along the way, my partner Tom Van Dyck and I have been recognised with top industry awards, including the Financial Times Top 400 Financial Adviser award in 2019, the Forbes/SHOOK Best in State Wealth Adviser award in 2020 and 2021, and with awards from Working Mothers in 2019 and 2020.[1]

The second myth we hear frequently is that responsible investing does not allow for a diversified portfolio. This is completely incorrect!

The responsible investing field has a lot of different terminology and there are a variety of ways to invest for impact. How would you help clarify this for potential investors and what is your group’s approach?

True! As responsible investing has grown and evolved, we as an industry have not done ourselves any favours with respect to jargon! Here is how The SRI Group thinks about it: Sustainable, responsible and impact (SRI) investing incorporates qualitative environmental, social and governance (ESG) factors into investment analyses alongside traditional, quantitative factors to evaluate risks and opportunities that impact an investment’s intrinsic value. ESG factors help identify longer-term risks that eventually turn into financial issues and is a more complete way of investing focused on double bottom line outcomes. Investors should be focused on these longer-term ESG risks as a way to identify good management teams, opportunities and risks. It is a process that can be applied in all asset classes throughout a portfolio. Anyone can focus on quarterly results but as investors, we need to look for other trends that can influence a company’s financial results, such as how companies treat their employees - do they treat them as assets or costs? Studies have shown that employers that treat their employees well can retain and attract talent, leading to less job turnover. This is a very disruptive process in any company, which can lead to a big drain on productivity and therefore financial results. As another example, management teams who are not thinking about the risks and opportunities posed by climate change to their business model can be missing a huge opportunity (or a huge potential problem!).

Integrating ESG into the investment analysis to reduce risk and identify opportunities is just one of several sustainable investing strategies clients can employ to minimise the negative impact on society or to pursue positive outcomes. Another strategy clients use is applying positive and negative screening to the portfolio (i.e. including or excluding certain sectors). Most of our clients are fully divested from fossil fuels - including both the reserves and the rest of the supply chain. We help clients pursue impact investing in companies mitigating climate change and working to transition to the clean energy economy. We also identify impact investment opportunities in community investing and gender / racial equity investing which clients can target alongside financial returns. All asset classes offer opportunities for these targeted initiatives, but the private capital and fixed income asset classes are both popular avenues through which clients invest for very specific outcomes. Shareholder activism is also a popular strategy with clients. This can involve proxy voting or engaging in dialogue with management teams and can be very effective at initiating change. For example, in recent years, shareholders have targeted large oil & gas companies to force them to develop plans to deal with climate change impacts to the environment. We have also seen a large increase in resolutions to increase companies’ disclosure of employee compensation so that gender and racial equity pay gaps are more transparent. You can’t improve what you can’t measure!

What do you want people to know about responsible investing?

 There are a few myths out there about responsible investing, which are worth debunking. Myth #1 is you will sacrifice returns to invest responsibly. The data demonstrates this has not been true historically. The MSCI KLD 400 Index is a responsible version of the S&P 500 and is the longest-running responsible investing index that has been live since 1990. Since its inception, the MSCI KLD 400 Index has outperformed the S&P 500 on an absolute and a risk-adjusted basis. As the field has grown, there have been more and more studies showing responsible investing can offer competitive returns. Morningstar recently analysed companies with high Morningstar ESG ratings in the Large Cap Blend US Equity Fund and ETF category and compared their trailing 3, 5 and 10-year performance as of 31 January 2021 to companies in the same category with low Morningstar ESG ratings. They found that ESG leaders out-performed the ESG laggards on an absolute and a risk-adjusted basis in each of the 3, 5 and 10-year trailing time frames. In our view, this is one of the best ways to invest and we have seen how investing with ESG factors has brought value and appreciation to client portfolios over the years[2].

The second myth we hear frequently is that responsible investing does not allow for a diversified portfolio. This is completely incorrect! ESG investing refers to a process and therefore we can apply that process across all asset classes, geographies, market capitalisations, and industries. We work with our clients to understand their long-term risk and return objectives as well as their near-term liquidity needs so that we are able to construct a tailored allocation to invest given their objectives. Our clients are invested across industries such as retail, healthcare, technology, industrials, etc. They do not tend to invest in oil & gas companies though. We can use environmental, social and governance factors as a part of the investment analysis for companies in any sector and in all asset classes.

The third myth is that ESG investing runs afoul of fiduciary obligations. Several organisations have stated the importance of ESG in satisfying fiduciary duty because ESG investing considers the whole picture of both quantitative and qualitative factors. As an example, the CFA Institute, a global association of investment professionals that offers the respected Chartered Financial Analyst (CFA) designation, said “integrating ESG factors can – and should – be seen as simply being a more complete approach to investing.”

What are the challenges you see with the growth of responsible investing recently?

20 years ago, the options around responsible investing were few and far between. Today, it seems like every financial institution is now offering some sort of responsible investing product because they see a market opportunity. Clients have more options than ever when selecting a responsible investing product, which is a positive development. However, just because the title of an investment product states it is responsible does not necessarily deem it so. For example, we have come across funds that state they are proactively investing in climate change initiatives, only to find several oil & gas companies in the fund. With so many options and choices, we see clients often get confused. Therefore, it is important for clients to work with an experienced investment adviser who has fully researched the investment, including the portfolio management firm and its professionals, the underlying holdings of the funds, and whether or not the investment satisfies a client’s financial goals and values. With so many options today, it pays to find a skilled and experienced financial adviser who can help you navigate through the ever-changing landscape.

Who is ESG investing appropriate for?

We see some demographics, such as women and millennials, as particularly strong in adopting ESG investing, but ultimately, we view it as being appropriate for all institutions and individuals when implemented thoughtfully throughout all asset classes in a diversified portfolio.

RBC Wealth Management recently issued a client study about responsible investing. We learned that more than 60% of clients are interested in increasing the share of ESG investing in their portfolio. While that is an impressive number, the share of women interested in increasing ESG in their portfolio was even higher at 74%! Millennials are also a leading demographic in adopting ESG investing, according to a 2019 report by Cerulli Edge. I think younger people understand it intuitively because they understand the confluence of the environment, economic growth and social justice issues. To them, investing is not just “OK, we’re going to make a ton of money and let’s forget about everything else.” You can’t let externalities fly off all the products and services that you use, or there will be big problems down the road.

While women and millennials get a lot of the attention, adoption has in fact been quite broad. The US Forum for Sustainable and Responsible Investment recently issued its 2020 Report on Sustainable and Impact Investing Trends showing responsible investing in the US growing 42% in just two years, from $12 trillion in 2018 to $17 trillion in 2020. This means that one out of every three dollars in the US is invested with some sort of responsible investing strategy. Our clients include people of all ages, genders, and professions as well as foundations and non-profits. People of all demographics buy certain products because of their values. We vote because of our values. Why shouldn’t we invest our savings—our number one financial asset—based on our values?

*value as of 3/31/2021

Due diligence processes do not assure a profit or protect against loss. Like any type of investing, ESG investing involves risks, including possible loss of principal.

Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.
RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC.

[1] The Financial Times 400 Top Financial Advisers is an independent listing produced annually by the Financial Times. The FT 400 is based on data gathered from advisers, broker-dealer home offices, regulatory disclosures, and the FT’s research. The listing reflects each adviser’s status in six primary areas: assets under management (AUM), asset growth, compliance record, experience, credentials and online accessibility. The financial adviser does not pay a fee to be considered for or to receive this award. This award does not evaluate the quality of services provided to clients. This is not indicative of this financial adviser’s future performance.

Source: Forbes.com. Forbes Best-in-State Wealth Advisers ranking was developed by SHOOK Research and is based on in-person and telephone due diligence meetings to evaluate each adviser qualitatively, which is a major component of a ranking algorithm that includes: client retention, industry experience, review of compliance records, firm nominations; and quantitative criteria, including: assets under management and revenue generated for their firms. Investment performance is not a criterion because client objectives and risk tolerances vary, and advisers rarely have audited performance reports. Rankings are based on the opinions of SHOOK Research, LLC and not indicative of future performance or representative of any one client’s experience. Neither Forbes nor SHOOK Research receive compensation in exchange for placement on the ranking. This award does not evaluate the quality of services provided to clients and is not indicative of this adviser’s future performance. The financial adviser does not pay a fee to be considered for or to receive this award. For more information: www.SHOOKresearch.com.

[2] Past performance is no guarantee of future results. It is not possible to invest directly in an index.