Responsible Investing

The Responsible Investment Association (RIA) of Canada, understand Responsible Investing to be the incorporation of environmental, social and governance factors into the selection and management of investments.

Responsible Investing has boomed in recent years as investors have recognized the opportunity for better risk-adjusted returns, while at the same time, contributing to important social and environmental issues.

Integris is pleased to announce that our Wealth Management divisions Investment Advisors have become Responsible Investing Specialists and now carry the RIS designation.

Environmental, social and governance issues are some of the most important drivers of change in the world today. And these are not just societal issues; they are important economic issues with significant implications for businesses and investors.

Some examples of key environmental, social and governance issues in Responsible Investing include:

There is a broad consensus among governments that the world needs to transition to a low-carbon economy to maintain a safe and stable climate. Responsible investors need to understand how companies are managing their exposure to climate-related risks and opportunities.

There are three broad categories of climate-related financial risk:

Physical risk: refers to risks generated by extreme weather and climate events such as rising sea levels.

Transition risk: refers to risks that could result from the process of transition to a low carbon economy.

Liability risk: refers to a risk scenario in which parties who have been negatively affected by climate change could seek compensation from those they hold responsible.

Freshwater resources are at risk from climate change, pollution, and a growing global population which amplifies the needs for power generation and food production.

The World Bank estimates that water scarcity could cost up to 6% of the world’s GDP by 2050.

Water is an important issue for investors because companies, especially those in water-intensive industries such as mining and agriculture, face significant financial risks. These risks include business interruption (directly through local infrastructure or indirectly through suppliers) and the potential market impact of negative media attention if the company is affecting a local community’s water supply or quality.

According to the Canadian Securities Administrators, women hold only 14% of all board seats of publicly-traded companies in Canada. And about 40% of Canadian boards are all-male.

This is a problem not only because it’s ethically problematic, but also because companies with strong representation of women on their boards tend to outperform on a number of financial metrics.

Research has shown that companies with more women on their boards tend to outperform their competitors on a number of financial measures, including return on equity, return on sales, and stock price growth.

Over the past two decades, compensation awarded to top Canadian executives has grown at a much faster rate than wages paid to the average Canadian worker.

A 2018 report from the Canadian Centre for Policy Alternatives found that Canada’s 100 highest paid CEOs earned 209 times more than the average worker. This growth in CEO pay can contribute to rising social inequality, negative media attention and reputational risks for the companies involved. It also raises questions about a company’s overall governance and incentive structures.

To address CEO pay, responsible investors advocate for companies to adopt ‘say on pay’ policies, which allow shareholders to vote on the remuneration of executives.

Free, prior and informed consent (FPIC) of indigenous people should be obtained before the approval of any project affecting their lands or territories and other resources.

The International Labour Organization (ILO) and the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) advance the principle that indigenous groups should be incorporated into the development of new capital projects that affect them.

It is especially important for the extractive sector to obtain and maintain support from local communities, Aboriginal or otherwise. Even if a project has received the necessary regulatory approval, community opposition has the potential to prevent a company’s project from coming to fruition – at great cost to the company.

Below is a photo of the Rana Plaza garment factory in Savar, Bangladesh. In April 2013, the factory suddenly collapsed resulting in the loss of more than 1,100 lives.

It was a sudden collapse in the middle of the workday and while a terrible tragedy, it is worsened by the fact that it was totally preventable.

This factory should not have been allowed to operate. But it was operating because companies, including leading global and Canadian brands, were not actively monitoring health and safety in their supply chains. The result was a tragic loss of life, as well as massive reputational, legal and ultimately financial risks for the companies involved and for their shareholders.

RI Market Growth

Responsible investment is growing rapidly in Canada and globally. The latest Canadian RI Trends Report showed that assets in Canada being managed using one or more RI strategies increased from $1.5 trillion at the end of 2015 to $2.1 trillion as of December 31, 2017. This robust growth represents a 41.6% increase in RI assets over a two-year period. Canadian RI assets now account for more than 50.6% of total Canadian assets under management, up from 37.8% two years earlier. As for the global market, the latest Global Sustainable Investment Review showed that global responsible investment assets reached US$22.89 trillion at the start of 2016, a 25% increase from 2014.

Get started investing with Responsible Investing at Integris and invest, impact, and improve the future of your money and your tomorrow – there is no planet B.

Responsible Investing