If you regularly watch the evening news, you likely have seen stories about social activism and massive protests in support of issues like the environment. Not only are they trying to communicate directly with the public, they are also asking some corporations to change. These are noble causes that sometimes involve a level of personal risk. Another way of exacting change is by working with companies from the inside. In other words: investing in them.
According to Rosalie Vendette, senior advisor in socially responsible investment (SRI) with Desjardins Group, SRI is an emerging field that is still defining itself. “It’s really about engagement, not activism,” says Vendette. “An engaged investor seeks to persuade management to adopt more responsible environmental, social and governance practices. A common way to sway management is to draw attention to these concerns through direct dialogue. While consumers have the power to decide whether or not to buy a product, investors wield their power in a much more strategic manner. For example, companies that fail to address the environmental impact of their operations can do serious damage to both their public image and their pocketbook. Conversely, companies that reduce their environmental footprint see their stock rise in more ways than one.”
Interestingly, there remains a perception that SRIs yield lower returns because performance may be sacrificed in favour of principles. “In the medium to long term, SRI criteria have little impact on fund performance,” says Denis Dion, product manager with Desjardins Investment Fund Development Department. “A study of American funds published in the Journal of Investing found that over an 18 year-period, an index of 400 U.S. companies that met SRI criteria performed comparably to the S&P 500, which indexes 500 major U.S. corporations.”
“The point is that SRI is a paradigm shift and we’re eagerly working to spread the news,” says Vendette. “We know that this new approach will continue to transform how we have traditionally invested in companies. And ultimately, we hope that this will contribute to more sustainable corporate practices.”
To find out more about Socially Responsible Investing, speak to your financial advisor.