• Activist investment and shareholder advocacy refers to a situation where shareholders of a publicly traded company “try to use the power of stock ownership to influence a company’s adoption of environmental, social justice, and governance stewardship,” says Ncube. A recent example: In 2021, activist hedge fund Engine No. 1 on the installation of new board members at oil and gas giant Exxon Mobil, as part of an effort to phase out the company from fossil fuels.
• Divestment, or divestment, means removing capital from an investment vehicle for ethical and moral reasons. “The strategy only promotes investment in ethically and socially valuable companies, while divesting and excluding companies associated with well-known social or environmental costs,” says Ncube. A common example is the divestment of fossil fuels, a tool aimed at reducing CO2 emissions and accelerating the adoption of clean energy to help fight the climate crisis.
Assessing and managing risk is part of any investment strategy, and RI is no different. Ncube points out that social and community investments in particular carry significant risk, as returns depend on the success of social outcomes. She notes that in these cases, “it is especially critical to thoroughly assess the financial prospects of the investment while also measuring its social value.”
Another potential risk is that ESG reporting is “a practice in evolution” without a regulatory standard, Ncube says. Unfortunately, differences in reporting methods and rigor can lead to inconsistent standards and even greenwashing, she says, making some companies or funds appear more sustainable than they actually are. “This can lead to investors inadvertently filling their portfolios with risky companies or funds that can cause portfolio losses,” she adds. (Global regulators are working on it.)
Start by partnering with an expert who understands the RI landscape and can help you with your impact goals, Ncube recommends. She is a member of the Responsible Investment Association (RIA), which maintains a list of service providers on its website, as well as a database of investment products that you can filter by type, asset class, geography, and more. Your current advisor or investment firm may also have resources and product offerings for those looking to incorporate RI into their portfolios.
For self-directed investors, many robo-advisors have introduced SRI, RI, or ESG investment options. Learn more in MoneySense’s guide to the best robo-advisors in Canada. You can also do your own research. For example, Toronto-based Good Investing financial planners offer a self-directed online course on creating a sustainable investment portfolio. Or you can view ESG assessments through online tools such as those from MSCI and Sustainalytics.
Sustainable investing has a bit of a learning curve, but in the end it’s a matter of figuring out what your goals are and then developing a path to get there. “I am convinced that successful responsible investing requires a solid investment framework and a disciplined approach to integrating ESG factors,” says Ncube, but it will be worth it. “RI reduces portfolio risk, improves long-term investment returns and enables investors to leave a positive impact on the world.”
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