by Chloe Cross, BMO –
Being aware of ethical, environmental, social and governance (ESG) principles, and applying them to the selection of your investments, can be a powerful tool for tackling ESG risks at the companies we invest in. Investing in companies that have strong ESG principles can encourage other companies to change their behaviors leading to wider societal change.
The world is confronting a range of critical challenges, with growing economies and populations putting stress on our water, food and energy resources. Solutions do not have to come only from governments and philanthropists; these problems can be tackled through harnessing the dynamism and creativity of businesses and markets. By establishing holdings in companies that are addressing these problems head on, investors can also have portfolios well positioned for long-term growth.
If this interests you, consider a philosophy based on these three pillars when investing: invest in companies that demonstrate responsible business practises, and support those whose activities make a positive contribution to society and the environment; avoid investments in companies with activities that harm society or the environment; use your influence as investors to encourage companies in their efforts to improve their management of ethical and ESG issues through engagement and voting.
Canadian investors looking to invest with environmental strategies can also look to fossil fuel free funds that are globally diversified to avoid concentrated portfolios. You can make an impact with your investment decisions. Some compelling reasons for fossil-fuel free investing are:
• Fossil-fuel free mandates embody socially responsible investing, allowing investors to align their investments with their principles of preserving the global environment.
• Fossil fuel stocks have cyclical risk and return characteristics: commodity stocks cycle in and out of favour. Higher volatility, partially as a result of fundamental changes in supply from fracking, has shifted the outlook for energy companies.
• Increased supply may lead to stranded energy assets: increased supply may lead to lower oil prices, leading to stranded fossil fuel assets. This is particularly impactful in Canada, where oil sands reserves typically have a higher extraction cost than traditional reserves.
We have a responsibility as investors to exercise the rights of ownership, and through engagement and active voting we can encourage companies towards meeting or setting best practice in the management of ESG issues. This should ultimately support long-term performance, reduce risk and contribute to promoting a fairer and more sustainable world.
BMO Mutual Funds are offered by BMO Investments Inc., a financial services firm and separate entity from Bank of Montreal.BMO Global Asset Management is a brand name that comprises of BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp. and BMO’s specialized investment management firms.
