The latest United Nations report on climate change is urging immediate action to avert a global catastrophe in the decades to come. For government, business and the general public, to ignore this warning is, well, irresponsible. The same can be said for investors, their portfolios and, even more so, their advisors.
The traditional metrics guiding investment – business fundamentals, macroeconomics and financial statements – remain important. But advisors who ignore the impact of environmental and related concerns on their practice will likely struggle to grow their client base, particularly with younger generations, says a board member of Canada’s leading organization for responsible investing, or RI for short.
What’s more, they may even lose clients as more investors seek to align their portfolios with environmental and social justice concerns, says Patti Dolan, a Calgary portfolio manager on the board of the Responsible Investment Association (RIA), a national body providing RI certification for advisors.
Put simply, responsible investment is quickly becoming a must-have skill for advisors. “It’s almost a fiduciary duty to understand responsible investing issues and the impact of these concerns on clients’ portfolios,” says Ms. Dolan, an investment advisor with SAGE Connected Investing with Raymond James. “It’s like the perfect storm because there are a lot of things happening at once.”
RIA statistics show a growing number of investment managers now take ESG (environmental, social and governance) issues, such as climate-change mitigation and respecting Indigenous rights, into account when making investment decisions. This is reflected by the rapid growth of assets managed using RI strategies, now more than $1.5-trillion in Canada alone, as of the end of 2015, an increase of almost 50 per cent since 2013.
The lion’s share involves institutional money, whose managers are guided by ESG mandates. But individual investors are also seeking more RI options. Over the same span, individual investors’ RI assets reached $118-billion in Canada – a 91-per-cent increase from 2013. Millennials are driving this growth, according to an EY report from 2016, being twice as likely as other demographics to invest according to social and environmental outcomes.
Yet interest is widespread. Among those seeing demand from clients is Winnipeg wealth manager Uri Kraut with CIBC Wood Gundy. “I have personally found more clients are asking about this in principle,” says Mr. Kraut whose clients, like most other advisors, tend to skew older. Part of the challenge for advisors is understanding what RI means in the eyes of their clients because so many variations and options exist.
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