A useful way to think about the range of approaches is as a spectrum that runs from conventional investing to philanthropy.

At one end of the spectrum, conventional investing falls outside the scope of sustainable investing, as it usually does not take into account environmental, social and governance (ESG) issues. At the other end of the spectrum is philanthropy. Philanthropy is not considered sustainable investing as it is less about investing and more about giving.

Between conventional investing and philanthropy in are five approaches to consider as a sustainable investor.

1. ESG Integration

When investment professionals say sustainability is a core part of their investment process (as many do today), they’re really saying that their analysis includes an assessment of the financial risks of ESG factors for the companies they’re considering investing in.

For many Canadian investors looking for a sustainable investment approach, this may seem too close to conventional investing to really meet their needs. What is at stake here is how aware a company is of the risks relevant to its business and how well it manages them. All good things. But a company that ranks highly in this regard may still be doing things that we don’t think are ‘responsible’ or ‘ethical’.

2. Negative Screening

This is traditionally “ethical” investing. It’s about avoiding or excluding companies that do things that are considered ‘questionable’, such as arms production and trade, alcohol and tobacco sales, or fossil fuel extraction. Where you draw the line in this list is a matter of your personal values.

Negative screening strategies can also have a risk management dimension. For example, changing values ​​or shifts in regulations could mean a long-term decline in oil and gas activities. The cost of capital can increase over time. Many of the reserves booked by energy companies may never be used. These are all real financial risks that investors may be able to avoid by using an exclusion approach. But ultimately exclusion is usually a moral issue.

3. Positive or best-in-class screening

This is the flip side of exclusion. Best-in-class screening is looking for companies that score well on ESG factors. Again, this can have both a financial and an ethical focus. And increasingly, evidence is mounting that the two concerns are inseparable.

This post 5 ways to invest sustainably for Canadian investors

was original published at “https://www.moneysense.ca/save/investing/5-ways-to-invest-sustainably-for-canadian-investors/”