Sustainable investing has moved well beyond trend status. As environmental, social and governance (ESG) factors have become a priority, it’s gone mainstream. For some people, it’s even become a requirement. Investors’ needs and demands are shifting, and our industry must keep pace with these changes and stay ahead.
Being socially responsible isn’t unique to 2020. On the investment front, we’ve been building to this point, adding segments to our portfolio management over the years. ESG factors represent another layer.
Sustainable investing is currently most closely associated with Millennials. But as we in the financial industry already know, these types of age profiles should be avoided. While it’s true that Millennials are more likely to verbalize their interest in these kinds of offerings, Generation X and Boomers are also important players. The demand for sustainable ETFs is continuing to rise, even though the transfer of wealth remains predominantly with older investors. Financial products have to be tied to more than just one generation to be successful, and that’s what we’re seeing here.
One of the qualities investors search for before making a decision is authenticity. They are suspicious of companies that pay lip service to sustainability to attract or retain customers. They are looking for corporate leaders who are dealing with ESG issues thoughtfully and transparently. These leaders have to listen to what their clients and their employees are telling them. Hypocrisy is not permitted.
At NBI, we recently launched three new sustainable exchange-traded funds: a Canadian Bond ETF, a Canadian Equity ETF and a Global Equity ETF. They are proof of the commitment we made to the United Nations as a signatory of the Principles for Responsible Investment and to the Responsible Investment Association.
The more people stand firm in what ESG means to them, the more you’re going to see investor behaviour have a significant impact on the market. As people learn more about who they’re investing in and who they’re buying from, it will compel a lot of companies to embrace this cause.
It’s vital that investors are clear on what they can control that both furthers sustainability and makes good business sense. Our job, as always, is to mitigate risks and provide guidance as well as returns.
We must help investors learn the language. “Sustainable investing” is often confused with “ethical investing,” which uses personal principles as a filter and has little relationship to sustainability (a point I make at every opportunity). We need to work together within our industry to ensure that investors master ESG terminology. When they hear “sustainable,” they tend to think about environmental protection. Social and governance causes aren’t necessarily top of mind.
That said, I’ve noticed that investors are interested in robust diversity and inclusion policies. They also want to see corporate transparency and fair executive compensation—they don’t want to support a company where one person is making $10 million a year and everyone else is barely earning minimum wage. The climate crisis will remain a massive consideration, but I see an opportunity for us to help investors gain a better understanding of the roles social and governance factors can play—and what lies beyond that.
Why are multiple generations focusing on sustainable investing now? There’s a growing awareness about the kind of footprint we are leaving, an awareness that is increasingly embedded in the values of our society. Most people want to have a positive impact or, at the very least, do as little harm as possible. They want to know that part of their portfolio is contributing to something good for their kids, their grandkids or their future families. Being mindful of their financial choices isn’t about denying themselves the ability to earn money—it’s about asking themselves if they need to earn money at all costs.
I firmly believe that going forward, the focus will be on investing in companies that show demonstrable progress through improved business processes and companies that are offering solutions to challenges facing the global community. Together, we’re building towards sustainability as a whole.
Investors want to invest in a better future. It’s our job to help them get there. Discover the NBI’s sustainable products.
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