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My advice • March 07, 2024
modified on June 19, 2024

Investment Series – ESG Investments: Socially Conscious Investing

What is the “S” in ESG?

As investors become more aware of the risks posed by issues such as climate change, and with social media sparking interest in global issues such as the #MeToo movement, Black Lives Matter, and women’s rights, interest in ESG investing has grown steadily in recent years. ESG refers to varied factors that can provide a focus for sustainable investment: environmental (E), social (S), and governance (G).

What is the “S” in ESG?

Here, we will examine social (S) factors. For an investment to be considered socially responsible, money should be invested in companies or funds that make a positive difference, whether that’s at a local, national, or global level. Causes at the heart of socially responsible investment include racial justice, gender equality, and inclusion. Community investing is another significant element in the social factor.

It’s also important to note that the different categories in ESG aren’t entirely separate. Certain groups may be at a higher risk of being harmed by climate change, such as Indigenous communities, racialized individuals, and women; accordingly, one of the biggest social issues is environmental justice. Socially responsible investing, therefore, also includes companies that are working to limit the impact of climate change by investing in clean energy or by reducing greenhouse gas emissions. In this way, these companies are helping build a stronger future, not just at a local level, but for the entire global population.

Investors and fund managers should also be aware that social considerations can change over time, reflecting both the political climate and the social climate. Investments based on social values may be impacted if interest in those values falters amongst the broader population.

The complex nature of ESG investing

In the past, portfolios that focus on social factors often excluded certain organizations, such as organizations involved in the production of fossil fuels, or organizations that manufacture or sell products or activities that are addictive or have the potential to do harm (alcohol, tobacco, gambling).

Today, those decisions are no longer so clear-cut: with interest in ESG investing surging, many companies in these industries are changing how they do business. “Every single company we invest in, we’re going to look at their ESG performance across all three buckets,” says Shelly Dhawan, Director of ESG Research at Mackenzie investments. “You might assume that a mining company would be excluded from an ESG fund due to its potential for negative environmental impacts. But by treating their workers well, and by investing in local infrastructure and community services, a mining company can also have a positive social impact on the communities near their mines, creating long-term stable employment and raising the standard of living. From an environmental view, the mining of metals like copper and lithium is integral to the electrification of vehicles as part of the transition to greener and more sustainable electricity. Add in significant improvements in how these companies manage their own environmental footprint, human rights, and governance factors and it’s not a surprise that our ESG funds include companies in the mining sector.”

Why socially responsible investing makes sense

When it comes to gender diversity, the evidence is clear: companies that promote gender diversity deliver higher profits and create more value. A 2017 study by McKinsey found companies ranking in the top quarter of gender diverse executive teams were 21% more likely to outperform bottom-quarter companies in earnings, and 27% more likely to outperform them in longer-term value creation.

Another strong indicator of profitability is ethnic diversity: companies with the most ethnic and cultural diversity on their executive teams were 33% more likely to be profitable than companies with less diverse representation.

For Mackenzie’s Dhawan, diversity is part of an ongoing conversation: “Research has shown that a critical mass of three or more women enhances corporate governance and leads to better decision making.1 So we review our holdings for companies with fewer than three women on their board, and we’ll start a dialogue with them. We believe better diversity on a company’s board and executive leadership promotes greater diversity throughout the entire organization”

Besides profits, increasing diversity at the top has other notable effects. Diverse boards are more likely to reflect an organization’s customer base and so are better placed to respond to changing customer demands. And including minority groups in leadership doesn’t just add diverse points of view at the top, it also demonstrates an organization’s commitment to inclusivity, which can inspire all employees to contribute new ideas and solutions. This in turn leads to improved employee satisfaction, which has a positive impact on retention.

How Laurentian Bank lives the S factor

Laurentian Bank is committed to diversity. In 2020, we welcomed Rania Llewellyn, the first woman to lead a major Canadian chartered bank, as the bank’s President and CEO. We have set aggressive targets for gender equity among independent board Members: from 2022, at least 45% of directors will be women or other people of marginalized genders, and by 2025, at least 15% of directors will be people who self-identify as a member of an under-represented group, not including cis women.

Laurentian also continues to make progress on the BlackNorth Initiative. As part of the mission to end anti-Black systemic racism in Canada, Laurentian has implemented unconscious bias training, increased community giving, and ensured that at least 5% of the student workforce is hired from the Black community.

In the end, ESG investing is also about being fiscally responsible. That’s a win for all of us.

Products that reflect your values

To support your socially responsible investment strategy, Laurentian Bank offers a broad range of funds distributed by LBC Financial Services, in partnership with Mackenzie Investments:

  • Mackenzie Global Sustainable Bond Fund
  • Mackenzie Betterworld Canadian Equity Fund
  • Mackenzie Betterworld Global Equity Fund
  • Mackenzie Greenchip Global Environmental Balanced Fund
  • Mackenzie Global Women’s Leadership Fund
  • Mackenzie Greenchip Global Environmental All Cap Fund
  • Mackenzie Global Sustainable Balanced Fund
  • Mackenzie Global Green Bond Fund

Is socially responsible investing important to you? Here are some questions to ask your advisor:

  • How can I learn about a company’s ESG practices?
  • Can a fund have a positive social impact even if it isn’t called an ESG fund?
  • How should I balance my personal values against an ESG fund’s stated investment goals?
  • If I invest in an ESG fund, will my portfolio’s performance be affected?

Ready to start investing in ESG funds? Book an appointment with one of our advisors today.

 

Sources
  1. Konrad, Alison & KRAMER, VICKI & Erkut, Sumru. (2008). Critical Mass: The Impact of Three or More Women on Corporate Boards. Organizational Dynamics. 37. 145–164. 10.1016/j.orgdyn.2008.02.005.

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