TORONTO — A growing number of investors concerned about the economic costs of climate change are turning to portfolios that are more environmentally friendly to do their part for the environment and to avoid potential losses.
“People are really looking for ways to have an impact and to ask themselves : “What can I do about climate change?”” explained Tim Nash, coach, investment in the firm Good Investing.
Print more common is that the fact of holding shares in industries with high carbon content contributes to harmful emissions, or at least supports, then investors seek to exclude these securities from their portfolios, noted Mr. Nash.
“More and more people realize that, in fact, their investment portfolio contributes greatly to their carbon footprint.”
There is also the threat of increased financial disasters related to climate change, such as the recent bankruptcy filing of the service in california PG & E, because of its enormous responsibilities. Its equipment has triggered some of the destructive wildfires that have ravaged the State in recent years.
Investors should be wary of climate risk direct as well as potential policy changes that could arise if the government were taking the threat more seriously, said Mr Nash.
“Investors need to get ahead of the curve on this, because if they wait the return of the political pendulum, and the establishment of regulations more stringent, they may come too late.”
Investors, large and small, are beginning to make this transition. Heavy vehicles such as pension plans rethinking their portfolios, including the Caisse de dépôt et placement du Québec, which is engaged by the end of 2017 to take account of climate change in each of its investment decisions.
This decision is part of a broader trend of”responsible investments” that take into account the environmental, social and governance (ESG). Together, these investments amounted to $ 2100 billion $ to the end of 2017, compared to about 500 billion $ in 2010, according to the Association for responsible investment.
The increased interest has helped to create a range of options much wider for investors means. Last September, Vanguard has launched two Exchange-traded funds that focus on ESG factors, one of which focused on u.s. equities and the other at the international level.
“For a long time, the options were few and the fees were higher than those of Exchange-traded funds (ETFS), traditional, but now, especially with Vanguard, they are very cheap, which is great,” observed Mr. Nash.
BlackRock, another big player in the sector ETF, launched in October a series of investment funds called iShares Sustainable Core, last October, as well as new analytical tools, including measures of the carbon intensity of many of the funds.
Investors can also learn more about the companies making up the funds, in particular thanks to the ratings produced by Sustainalytics, on Yahoo Finance, or the rankings in terms of sustainable development of the mutual funds in Fossil Free Funds.
Attention to costs
The big banks also offer mutual funds, sustainable investment, but investors should closely monitor the expenses of management, said Mr. Nash.
“They know that our customers are willing to pay a higher price for organic food, coffee, or fair trade chocolate, and they assume that the investors are willing to pay higher fees for mutual funds socially responsible.”
The growth of a variety of responsible options so that investors can adjust their portfolios, for his part, said Patti Dolan, portfolio manager at Mission Wealth Advisors, the firm of Raymond James.
“The ability to align values and investments is more significant, and this was really not the case in the past.”
Ms. Dolan, who also serves on the board of directors of the Association for responsible investment, said that investors should be careful to maintain the diversification of their investments, because they have better control over the direction in which they direct their funds.
According to its values
In addition to allow investors to align their portfolios with their values, the investment vehicle responsible for, such as index fund iShares Jantzi Social can also generate higher yields, noted Ms. Dolan.
“It has outperformed the TSX composite and the TSX 60 every year for the last 18 years and, overall, a quarter to half a percent, so it’s quite reasonable. It is false to believe that we are going to lose money by investing in this way, you can actually find companies which are not as volatile.”
To balance the equity portion of a portfolio, there is a green bond, which funds sustainable development projects. CoPower, one of the leaders in the investment sector impact in Canada, funds projects such as geothermal energy, modernization of LED lighting and solar energy community.
Since it is an obligation for private, there are risks of default, liquidity and duration, but offers an attractive interest of 5 % on an obligation of six years, said Mr Nash. “Bonds really have not very good performance. For my clients, so this is a way to diversify its activities, taking a little more risk, get higher returns, and especially for having a very positive impact, by directly investing in environmental projects across Canada.”