Sustainable investing or responsible investing refers to investment strategies that consider environmental, social and governance (ESG) issues as part of the investment decision-making process.
Sustainable investing is growing around the world
Interest in responsible or sustainable investing has increased substantially over the last decade around the world and across all audiences, from individual, retail investors to the largest institutions.
Global responsible investment strategy assets now total more than US$30 trillion, an increase of 34% since 2016.
Source: “2018 Global Sustainable Investment Review,” Global Sustainable Investment Alliance.
What is ESG?
ESG refers to environmental, social and governance issues that are taken into consideration when making investment decisions. Integrating ESG factors into investment processes can help identify key risk and return drivers in portfolios:
Environmental: Impact on the environment, which can include water usage, pollution, waste management, energy efficiency, gas emissions and climate change.
Social: Human rights, health and safety, employee working conditions, community impact, diversity, population and demographics change, consumption patterns and shareholder reputation.
Governance: Board independence and diversity of board members, alignment of shareholders and executives, compensation, shareholders rights, transparency/disclosures and business ethics/culture.
Investment Approaches
In response to increasing interest, a wide spectrum of sustainable investing approaches and products have developed, ranging from mainstream investment management teams beginning to consider environmental, social and governance (ESG) issues as part of their investment processes to highly specialized 100% impact groups:
Exclusionary Screening
Definition
Excludes companies, sectors, or countries based on ethical, moral or religious beliefs.
Purpose/
Objective
Eliminates exposure to a group of securities while pursuing a traditional investment objective (e.g., growth, income, etc.)
ESG Integration
Definition
Combines ESG data, research and analysis together with traditional financial analytics in making investment decisions. May not explicitly exclude investments in undesirable countries, companies, etc.
Purpose/
Objective
Incorporates ESG risks into analysis of all holdings, as a component of financial risk with two primary objectives, to reduce risk or improve performance alongside pursuing a traditional investment objective (e.g., growth, income, etc.)
Shareholder Engagement
Definition
Uses the power of shareholder and stakeholders to influence corporate behaviour.
Purpose/
Objective
Influence corporate behaviour in order to move forward an issue related to Environment, Social or Governance initiatives.
Thematic Investing
Definition
Invests in sustainable businesses that are related to and likely to benefit from specific impact themes (e.g., energy efficiency, green infrastructure, clean fuels, low-carbon transportation infrastructure, etc.)
Purpose/
Objective
Provides investors exposure to a specific theme, linked to one or more issue areas where social or environmental need has the opportunity to create growth opportunities.
Impact Investing
Definition
Investments made into companies, organizations, and funds with an intent to generate a measurable, beneficial social & environmental impact alongside a financial return.
Purpose/
Objective
Focus on generating a measurable impact in one or more issue areas.
At AGF, responsible and sustainable practices are more than simply an approach to investing. To find out how AGF integrates ESG into our investment decision-making and ownership practices, visit the Sustainable Investing page on AGF.com.
The commentaries contained herein are provided as a general source of information and should not be considered personal investment or tax advice. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or reliance on the information contained here.
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AGF Management Limited (“AGF”), a Canadian reporting issuer, is an independent firm composed of wholly owned globally diverse asset management firms. AGF’s investment management subsidiaries include AGF Investments Inc. (“AGFI”), AGF Investments America Inc. (“AGFA”), Highstreet Asset Management Inc. (“Highstreet”), AGF Investments LLC (formerly FFCM LLC) (“AGFUS”), AGF International Advisors Company Limited (“AGFIA”), Doherty & Associates Ltd. (“Doherty”) and Cypress Capital Management Ltd. (“CCM”). AGFI, Highstreet, Doherty and Cypress are registered as portfolio managers across various Canadian securities commissions, in addition to other Canadian registrations. AGFA and AGFUS are U.S. registered investment advisers. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF investment management subsidiaries manage a variety of mandates composed of equity, fixed income and balanced assets.
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About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
