SRI investment professionals, after all, collectively determine where to invest and divest trillions of dollars (US$40.5 trillion and counting), which positions them to move the dial on a variety of topics – including corporate performance on diversity, equity and inclusion (DEI). After a wave of CEOs pledged their solidarity with Black Lives Matter protesters in the spring, investors themselves started making broad industry commitments around DEI. In June, the Racial Justice Investing coalition of 128 institutional investors in the U.S., managing approximately US$2 trillion in assets, issued a statement of solidarity with anti-racism protesters and a call to action to address systemic racism. “We are seeking to use our wealth and class privilege to push toward racial justice and liberation, including pressing large employers to be more inclusive and to pay people equally regardless of race,” said Pat Miguel Tomaino from Zevin Asset Management, one of the endorsing institutional investors.

In October, Canadian institutional investors managing more than $2.3 trillion in assets signed the new Canadian Investor Statement on Diversity & Inclusion, an initiative coordinated by the Responsible Investment Association. By late November, BlackRock, the world’s largest asset manager, along with Nasdaq and Goldman Sachs, vowed to start pushing companies for greater racial and gender board diversity in 2021.

The progressive world of SRI investing may have a strong orientation toward creating an equitable and sustainable world, but it has an unfortunate contradiction. SRI firms are maintaining the status quo with an exclusive culture that’s made up of predominantly white professionals, particularly in senior and executive roles. Pensions  & Investments reported that since 2017, ESG teams have grown by 229% globally, but according to a 2019 study roughly 80% of SRI professionals in the U.S. are white, even though they make up approximately 60% of the wider population (and just 45% in major cities like New York and Chicago).

They’re not just failing to employ people of colour and provide opportunities for these professionals to advance; they’re also dropping the ball when it comes to investing in funds managed by people of colour.

At this point, the pot and the kettle seem to be the same colour. As Narinder Dhami, managing partner of Marigold Capital, explains, “Even though we talk a big game on diversity, we fail to see it applied in any meaningful way in impact investing.”

Some SRI professionals are owning up to the disparity. Matt Patsky explained to Bloomberg why his firm, Trillium Asset Management, with more than US$3 billion in assets under management, should get a “C” in DEI. He acknowledged that while his firm pressured investors to divest from South Africa during anti-apartheid struggles, just 10% of his 44 employees are racialized. “We have to start walking the talk and make the same changes we’re asking companies to make.”

“Even though we talk a big game on diversity, we fail to see it applied in a meaningful way in impact investing.”

— Narinder Dhami, managing partner of Marigold Capital

Principles for Responsible Investment (PRI), a UN-supported network of approximately 3,000 global signatories based in London, England, works to incorporate ESG (environmental, social and governance) criteria into the more than US$100 trillion that they collectively manage. But while PRI may be the “world’s leading proponent on responsible investment,” which includes advocacy on DEI, they too acknowledged to Bloomberg that “we aren’t where we want to be” in terms of diversity: just 22% of PRI’s employees are people of colour – when 40% of London is racialized.

Closer to home, the McConnell Foundation, a leading Canadian organization in the impact-investing space, has an admirable mission to build “a more inclusive, innovative, sustainable and resilient society.” However, almost 90% of its impact investments are in organizations founded or led by white Canadians. In 2019, the McConnell Foundation launched a Solutions Finance Accelerator to direct private capital to areas with significant needs. Of the nine participating intermediaries in this program, 44% are led by women and 22% are led or co-led by Indigenous people; however, the advisory panel for this accelerator consists entirely of white Canadians.

When approached by Corporate Knights, the McConnell Foundation acknowledged the problem. “We would agree with your assertion that the investment community in Canada continues to show a lack of diversity and that this reality is also reflected to a large extent in our own portfolio.”

Earlier this year, the McConnell Foundation committed to setting up an internal racial-justice working group to explore how to embed DEI principles more broadly in its granting and investing. Said a foundation representative, “The continual improvement of our practices is important. We know that we must, in every part of our activities, apply an equity, diversity and inclusion lens.”

While there is little doubt that these impact-driven organizations are focused sharply on creating equitable communities, until the sector addresses its own systemic racism and bias, research reveals that its work is bound to fall short.

The value of having people of colour leading SRI work goes well beyond boosting financial performance and innovation.

How does the lack of diverse leadership in the investment industry affect financial performance? The difference is noteworthy. Investment professionals who have similar life experiences often make decisions from a similar perspective, which can lead to overlooked opportunities. Studies have shown that the more similar the investment partners, the lower their investments’ performance. For example, a  study conducted by Harvard Business Review found success rates for acquisitions and IPO were on average 11.5% lower for partners that went to the same schools, compared to partners from different schools. The success rate of investments went down even further when partners are of the same ethnic background.

In a time when companies that are innovative are more likely to withstand the tsunami of changes to our geopolitical, environmental and social contexts, it’s more important than ever to build diverse teams. Studies show a correlation between the diversity of management teams and overall company innovation. The BCG Henderson Institute found that companies with above-average diversity in leadership generated 45% of their total revenues from innovation, while their less-diverse peers saw 26% of revenue coming from innovation.

The value of having people of colour leading SRI work goes well beyond boosting financial performance and innovation. SRI investment professionals engage with companies on advocacy, benchmarking and problem-solving to improve ESG outcomes that benefit our society and our planet. It’s essential that Indigenous and communities of colour that have been at the epicentre of the consequences of irresponsible corporate practices and devastating pollution have a central role in the SRI investing space. In many cases, racialized and Indigenous professionals bring lived experience to the table, and a nuanced understanding of proposed interventions and opportunities, potentially preventing well-intentioned initiatives from having negative impacts or consequences.

What can be done

In early October, Diversity in Sustainability hosted a workshop in Toronto at which 25 women of colour spoke about the challenges they faced as sustainability professionals, including having to forge their own paths without existing networks, actively feeling invisible, and being subject to micro-aggressions. If your firm wants to ensure you’re tapping into the diverse and extensive knowledge available in the field of SRI, first acknowledge that professionals of colour experience significant systemic barriers. Make an effort to expand your network and hire candidates who bring different perspectives to the table.

In addition to investing in diversifying your team, work on diversifying the companies that earn your investment dollars. An increasing number of funds, organizations and programs are being created and led by Indigenous and people of colour. Marigold Capital’s founder had been told throughout her career that she didn’t “have the right face to lead efforts,” and now she is one of the very few women of colour in Canada managing an impact fund that actively seeks to invest in companies and founders that have been overlooked. Raven Capital is also working hard to transform how and where capital is allocated, with its keen focus on Indigenous entrepreneurs and communities.

While businesses that target diversity are thriving, actual diversity is not. Deeply entrenched systems of bias – and, let’s face it, racism – can change only when leaders go beyond making statements and pledges. If SRI investment professionals want to play a credible role in influencing corporate behaviour on DEI, they’ll have to look within. To create change, the SRI community needs to articulate clear goals and actions that disrupt systems of bias, not just in the companies they invest in, but in their own firms and foundations.

There has never been a more opportune time to disrupt deeply entrenched systems that are keeping your company from being competitive on the global stage. Seize the moment.

Share your viewpoint in the Equity, Diversity and Inclusion in Sustainability Survey

In a field where we strive to create a better world and better future, how equitable, diverse and inclusive is the sector of sustainability?

Diversity in Sustainability, a new non-profit focused on increasing equity, diversity and inclusion in the field of sustainability, would like to hear more about your background, your experience working in sustainability, any barriers you had entering the field, and if your organization supports equity, diversity and inclusion.

You can fill out the Equity, Diversity and Inclusion in Sustainability survey at https://www.diversityinsustainability.com before March 23, 2021.

A global summary of the findings will be shared in Summer 2021.

The post Beyond the pale: Responsible investing firms failing to invest in people of colour appeared first on Corporate Knights.

Of course, that was before the coronavirus began pummelling the economy. COVID-19 is only deepening our desire to support companies that behave nobly and put people and planet ahead of profits.

It just so happens that corporations with better environmental, social and governance (ESG) scores are proving themselves to be more financially resilient during the pandemic. Yes, sustainably minded funds have taken a big hit because of COVID-19, but Bloomberg found that they have been outperforming their conventional peers. Bloomberg’s analysis of 2,800 responsible investing (or RI, also known as sustainable, socially responsible or ethical investing) funds globally found that the average RI fund has fallen by about 12% this year as of March 12. That stings, but it’s just half the decrease seen by the S&P 500 Index over the same period.

According to Ipsos polling released by RBC Global Asset Management in January, two thirds of Canadians surveyed say they’re interested in RI. Nearly three out of four believe RI is “the way of the future.”

So why do so few Canadian banks offer any sustainably focused investing options?

Most bank advisors are poorly informed about ethical options

Corporate Knights anonymously visited Toronto branches of the Big Five banks in January and inquired about ethical investing. While some bank advisors were enthusiastic and fairly well informed, many advisors didn’t know whether their banks offered ethical investments or what those offerings entailed. Some advisors downright discouraged us from putting our savings into RIs. Notably, BMO and RBC were the only two banks that had dedicated RI funds.

The Toronto-based Responsible Investment Association (RIA) did its own polling with Ipsos in 2019 and found that while 79% of Canadian respondents would like their financial services provider to inform them about RI options, only 23% have been asked by their banks if they’re interested in RI. That helps explain why only a quarter of Canadians say they already have responsible investments, according to stats from Wealthsimple, BMO and the RIA.

In the U.S., meanwhile, new investments into sustainable funds quadrupled in 2019 compared to 2018 (pulling in a record US$20.6 billion in new money last year), and European investments doubled to a record-busting €120 billion, according to Morningstar.

Push to regulate the wild west of green investing

The tricky part for would-be purchasers is figuring out what investments genuinely align with their values. One CIBC branch advisor told Corporate Knights that “all the mutual funds we offer have gone through these ESG checks.” Ditto for all of RBC’s funds around the globe. That doesn’t mean they screen out any dubious companies or sectors. Only exclusionary funds with negative screens do that – and they may just screen out, say, tobacco and gambling but not thermal coal and oil. Part of the problem is there’s no universal standard for how terms like “ESG,” “low carbon” and “fossil-fuel free” are defined or applied, leaving funds vulnerable to “impact washing.”

Many Canadian ethical fund managers choose not to screen out fossil-fuel companies, instead investing in those they consider sector leaders. Which is fine for some responsible investors – if funds are transparent about it. But after the RIA received flak for listing fossil-fuel-free funds in its directory that were later exposed to contain oil and gas companies, the association is now considering creating a certification process for RI funds in Canada.

It gets even more muddled when retail investors start exploring the wider world of self-directed online trading accounts and robo-advisors (digital platforms such as apps that rely on software to offer financial advice), which often offer access to a number of American and international ETFs, or exchange-traded funds. (Branch-level bank advisors are generally not able to sell ETFs despite their booming popularity.) One ETF known as iShares MSCI ACWI Low Carbon Target ETF was called out for having holdings in Shell, Chevron and a number of other high-carbon companies.

To counter potential “impact washing” in Europe, the EU sets standards for the labelling of financial products, mandating that financial advisors disclose the sustainability risks of a finance product to investors, “regardless of the sustainability preferences of the end investors.”

Canada’s federally convened Expert Panel on Sustainable Finance recommended we do something similar here. The panel (which included Tiff Macklem, a Scotiabank director and Rotman School of Management dean, as well as RBC director Andy Chisholm) recommended that Finance Canada create “financial incentive for Canadians to invest in accredited climate-conscious products through their registered savings plans.”

How green are the banks’ own investments and loan books?

Many climate-conscious investors will also want to know just how their banks are dishing out their own money. All five banks have signed on to the UN-supported Principles for Responsible Investment, promising to fold ESG factors into investment decisions, though research by Corporate Knights has found that while the Big Five invest billions in sustainable-solution companies, they also invest billions in controversial weapons, for-profit prisons and severe environmental violators, as well as a number of other themes that would register as egregious on many responsible investors’ radars. All five also have loan books bulging with fossil fuels in relation to their renewable energy lending, putting them at odds with global money trends.

With former Bank of Canada governor Mark Carney cautioning that firms that ignore the climate crisis “will go bankrupt without question,” Canadians should be able to readily invest their retirement savings in environmentally-conscious options, sustainable finance champions say

With even central bankers now warning of climate-induced systemic financial crisis and former Bank of Canada governor Mark Carney cautioning that firms that ignore the climate crisis “will go bankrupt without question,” Canadians should be able to readily invest their retirement savings in climate-conscious options, sustainable-finance champions say.mo

In the meantime, the first RRSP deadline of the new decade gives Canadians a chance to rethink their finances, knowing there are now some options on the shelf that allow them to bank on a sustainable future.

Big Five ethical investing report card

We visited Toronto-area branches of the Big Five banks and asked advisors what ethical or sustainable investment options they offered. Here’s what we found:

Scotiabank

Ethical options: No responsible funds available in branch, though Scotiabank said in a statement that it has “considered” ESG factors in the investment process, and added, “Scotia iTRADE offers sustainable investing tools [online].”

Fossil-fuel-free or climate-conscious funds: No.

Knowledge of adviser: The personal banking adviser was unaware of any sustainable options and returned five minutes later to confirm that no options exist that the bank’s financial advisers were aware of.

Cost of values-aligned portfolio: N/A.

Bank loans and investments (clean vs. dirty): Scotiabank dishes out the second-most oil and gas loans ($14.8 billion), compared to zilch in loans to renewables.

Score: D-

TD Canada Trust

Ethical options: TD Canada discontinued its sustainability funds in 2013, and at this point there are no specific RI-themed­ funds available to Canadians at branch level. TD did not respond to our request for comment.

Fossil-fuel-free or climate-conscious funds: No.

Sustainability knowledge of advisor: One bank advisor was blunt, saying “To be completely honest, most socially aware investment funds don’t make a lot of profit. As such, we don’t have funds that invest in these companies.”

Cost of values-aligned portfolio: N/A.

Bank loans and investments (clean vs. dirty): TD has the smallest oil-and-gas loan book of the Big Five, but its investment book is another story. Among the Big Five, it has the worst ratio of investments in sustainable-solution companies to harmful companies.

Score: D-

CIBC

Ethical options: No specific RI funds. CIBC’s VP of Public Affairs says that “ESG factors are included in our investment process across all funds.”

Fossil-fuel-free or climate-conscious funds: No.

Sustainability knowledge of advisor: Initially, the branch manager said that CIBC has some ethical funds that “don’t invest in tobacco companies or oil companies,” but the manager and a financial advisor weren’t aware of specifics, so they placed a phone call. “We don’t get asked this question frequently,” the manager said. After their call, the manager updated earlier comments: “The good news is there’s no specific mutual funds that actually do that since all the mutual funds we offer have gone through these ESG checks.”

Cost of values-aligned portfolio: N/A.

Bank loans and investments (clean vs. dirty): CIBC says all its funds are filtered through an ESG lens, but it has $2.7 billion, or 6.4% of assets, invested in companies flagged for harmful products and activities, including palm oil deforestation and severe human rights violations. On the bright side, the bank has 9.4% of its investments in companies tagged as sustainable-solution providers, because they earn more than a fifth of their revenue from themes like renewable energy and electric cars. On the loan side, CIBC’s exposure to oil and gas companies is almost five times as large as its renewable energy book.

Score: D

RBC

Ethical options: RBC’s Vision line uses ESG filters to determine holdings while screening out weapons makers, as well as traditional sin stocks like tobacco and alcohol. RBC Vision also has a Women’s Leadership fund.

Fossil-fuel-free or climate-conscious funds: Yes: the RBC Vision Fossil Fuel Free Global Equity Fund. Though a financial planner at one branch said the bank doesn’t offer entirely fossil-free options, suggesting that omitting a whole sector could limit the opportunity to grow. RBC’s Vision Fossil Fuel Free fund actually outperformed RBC’s Global Equity Fund in both 2018 and 2019.

Knowledge of adviser: The financial planner was well versed in the Vision line (besides fossil-free funds) and enthusiastic about the Vision balanced fund, saying it has outperformed RBC’s regular balanced fund (“being green is saving companies a lot of money down the road”).

Cost of values-aligned portfolio: Varies, but many are slightly lower than conventional funds.

Bank loans and investments (clean vs. dirty): Canada’s largest bank has the highest total amount of oil-and-gas loan exposure on its books ($16.4 billion). That’s more than seven times more than its renewable loans, which gets it into trouble with environmental activists, though it also has the biggest ratio of investments in sustainable solutions to harmful companies among the Big Five.

Score: C+

BMO

Ethical options: Branches offer BMO’s Sustainable Opportunities Global Equities mutual fund, as well as a Women in Leadership fund. There are eight new ESG ETFs for self-directed online accounts.

Fossil-fuel-free or climate-conscious funds: Yes: the BMO Sustainable Opportunities fund.

Knowledge of adviser: The personal bank associate was enthusiastic about BMO’s sustainable opportunities fund, explaining that she invests in it herself, but she cautioned that it is mid-to-high risk and is best for longer-term investments. A financial planner follows up via email to discuss ESG options further.

Cost of values-aligned portfolio: Fees vary, but the Sustainable Opportunities fund has a somewhat lower fee than comparable BMO funds. The ESG ETF fees are also priced lower than many non-RI equivalents.

Bank loans and investments (clean vs. dirty): BMO has both the biggest renewable-energy loan book and sustainable-solutions investment book among the Big Five, but it has the largest amount invested in companies classified as “harmful.”

Score: B-

A version of this article appeared in the Toronto Star.

*Note: This article was updated for the Spring Issue of Corporate Knights magazine.

** Sustainable solution investments includes 512 companies in the Corporate Knights database that earn more than 20% of their revenues from products or services (such as reneable energy, energy efficiency, electric cars, public transit and organic food) that benefit the environment or society as tracked by Corporate Knights Radar.

*** Harmful investments include 451 companies in thermal coal, weapons, for-profit prisons, as well as companies with severe human rights and environmental violations, and other types of egregious products and misconduct tracked by Corporate Knights Radar.

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The General Electric Company (GE:NYSE) was founded in 1892 by American icons including Thomas Edison and J. P. Morgan in upstate New York. It was initially famous for producing light bulbs and rapidly expanded into home appliances, aviation and power generation. The company’s market value peaked just shy of $600 billion in 2000 but has steadily declined to less than $100 billion today.

GE’s story is the cautionary tale of a company that started a move towards sustainability in 2005 (remember former CEO Jeffrey Immelt’s Ecomagination exhortation that “green is green?”) but nearly collapsed thanks to legacy businesses in the financial and power sectors. A lot has been written about how GE Capital dragged down the once dominant behemoth after the 2008 financial crisis. But the main reason GE’s financial performance reeks is that the company bet that gas power would be a golden egg, and it turned out to be a rotten one.

As recently as 2016, GE’s power division (which is separate from its renewable energy division) accounted for half of the company’s pre-tax profits. It had doubled down on gas power with its late 2015 acquisition of Alston, a major French industrials company, for $13.7 billion – GE’s largest industrial acquisition ever. Soon after, orders for gas turbines cratered, forcing the company to slash order projections by 75% (from 160 turbines to “somewhere around 40”) in early 2017. By 2018, the power division had slipped into the red, losing $800 million, as detailed in a recent report by the Institute for Energy Economics and Financial Analysis.

Number of all large gas turbines (>100MW) sold worldwide

As the IEEFA writes, “Investors lost billions when the (once) most valuable company in the world, General Electric Company (GE) and its largest shareholders – BlackRock, Vanguard, State Street and Fidelity – misjudged the pace of the global energy transition and subsequent collapse of the gas turbine and thermal power construction market.”

Yes, GE is still, astonishingly, betting big on coal. Not only has it been a “leading supplier of coal-fired power plants worldwide,” in early May it announced it was building Kosovo’s new $1.3 billion 500-megawatt power plant. I agree with the IEEFA that the move is “deeply puzzling.”

Back when GE first announced its Ecomagination campaign (with a pledge to put US$1.5 billion into green R&D), ethical investors such as myself were excited to see such a large company make such a bold green commitment. After all, in the ’90s GE was better known among socially responsible investors for its nuclear weapons parts production which made it the subject of a successful boycott. (It’s still the world’s 22nd largest weapons maker, according to 2017 data, with US$3.8 billion in arms sales representing 3% of its revenue, it’s just not the nuclear kind).

By 2015, Ecomagination had generated over $200 billion in cumulative revenues, and Fast Company wrote that Ecomagination had “become the lynch pin of a remarkably successful reinvention of GE, the foundation of the company’s future, and the vanguard of the global movement towards corporate environmentalism.”

A 2008 print ad campaign for GE’s Ecomagination.

Unfortunately, management saw things differently, and, as the IEEFA put it, “GE assumed wrongly that demand for natural gas and coal would continue to track global economic growth” – an assumption that  cost GE and its investors as much as $193 billion over the past three years.

Its financial woes could get even worse since GE is currently facing a Securities and Exchange Commission investigation into the conglomerate’s “aggressive” accounting practices at both its capital and power divisions.

GE was a great investment throughout the 20^th century, but lacking a clear forward-looking strategy to transition into a low-carbon future, it’s no wonder that sustainable investors are turning out the lights on GE shares.

As an alternative, I present to you Schneider Electric (SGBSY:OTC). Schneider Electric is a French energy management company making hardware and software that helps companies improve their energy efficiency. It’s set ambitious targets, such as 80% renewable energy and 200 zero-waste-to-landfill sites by 2020 as well as full carbon neutrality across its extended supply chain by 2030. The company reports on its progress towards these goals every quarter with a non-financial disclosure document that I wish other companies would emulate. I’m not surprised at all to see Schneider Electric at #60 on the 2019 Corporate Knights Global 100 Most Sustainable Corporations in the World list, and #13 on the 2019 Corporate Knights and As You Sow Clean200 list.

Schneider Electric has been reliably profitable over the last five years, and has outperformed GE while paying a higher dividend. I expect demand for its energy-efficient products and services to increase as companies and governments around the world get more serious about climate change.

If you want to keep the lights on sustainably in the 2000s, forget GE. Schneider Electric is a better investment.

Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet!

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

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Berkshire is a conglomerate with over $700 billion in assets. The largest business it owns is an insurance company (Geico), and its power business is both a major burner of fossil fuels and builder of renewables. About US$200 billion of Berkshire’s assets are invested in a basket of stocks with tax-dodger Apple being the largest egg and just under $US100 billion invested in financial services companies, including Bank of America (a Global 100 company) and Wells Fargo (which has earned some bad press in relation to unethical marketing practices). Berkshire earns clean revenue from things like non-coal rail and renewable energy projects, including the US$2.5 billion Topaz Solar Farm and giant wind farms in Iowa, with its power company, Berkshire Hathaway Energy, claiming it has made a cumulative US$25 billion investments in solar, wind, geothermal and biomass generation.

While Buffett told investors he has a “big appetite for wind or solar,” make no mistake, averting climate change is not his motivation. Buffett has made statements that indicate he’s unconcerned about climate risks, even though Berkshire Hathaway’s largest holdings are insurance companies. GEICO took a US$490 million loss due to flooded vehicles from 2012’s Hurricane Sandy, and still Buffett told shareholder and NASA climate scientist, James Hansen, in 2016, “[climate change] will not hurt our business, and it’s immaterial compared to other things that could affect our insurance business.”

This shortsightedness helps to explain why Berkshire Hathaway is still making big bets on oil (Buffet just sunk US$10 billion into Occidental Petroleum) and continues to own major stakes in coal-fired electricity generation (though some of its utilities are finally coming around to the idea of retiring coal plants early). Berkshire’s also actively lobbied against rules that would make it easier for people to put solar panels on their roofs.

Berkshire Hathaway doesn’t disclose much in the way of environmental data (at this year’s shareholder meeting, Buffett extolled the virtues of avoiding “needless reporting”). Instead, Berkshire simply provides a link to the paltry list of its companies (just 12 of the 66 listed) that release sustainability reports. I believe this is a huge blind spot that exposes Berkshire Hathaway shareholders to environmental, social, and governance risks that could come back to bite investors.

There is no company on earth quite as diverse as Berkshire Hathaway. But since Berkshire’s largest business is insurance, we’re pitting it against one of Canada’s biggest insurance and financial services companies in this week’s showdown.

I’ll be honest that I was skeptical of Sun Life Financial going into my research. While it claims to integrate ESG considerations within its institutional investments via the “ESG+” lens, it doesn’t offer any specific socially responsible or green investments options for retail investors. I’ve helped many clients get rid of overpriced Sun Life mutual funds to invest in greener and cheaper options. That said, I’m pleasantly surprised with what Sun Life is doing.

Sun Life earns clean revenue points from investments in renewable energy, green bonds and its ownership of Bentall Kennedy – a leader in green buildings. Sun Life’s chief investment officer has publicly spoken about the company’s exposure to climate risks, and I’m curious to see the results of a climate change scenario analysis they’re performing this year. Sun Life still has a long way to go, especially on the integration of sustainability risks into its investment funds, but its performance has been good enough to be named #41 on the Corporate Knights Global 100 list of the world’s most sustainable corporations. Over the past five years, Sun Life led investors to more profitable pastures than Berkshire, and as the current bull market cools down, Sun Life’s 3.9% dividend looks pretty against the goose egg offered up by Berkshire. If you’re looking to ditch your Berkshire Hathaway holdings, Sun Life would certainly be a more sustainable pick.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet!

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

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Gone are the days when penny pinchers walked into their local banks and signed onto whatever investments their financial advisors recommended. A deluge of young investors is shaking up the investment community, demanding that their hard-earned savings do more than just tick upwards until they retire in Florida.

And since, let’s face it, few of us really have time for or interest in sitting through dull bank meetings to talk mutual funds, low-fee automated robo-advisors are stepping in to deliver feel-good investments you can order up in minutes on your smartphone.

Millennials clearly want this. They see their purchases (from footwear to exchange-traded funds) as powerful drivers for social change. No wonder almost every investment house now offers socially responsible investments (SRIs), which reportedly represent anywhere from 18 to 50% of investments, and slick apps offer funds that promise to clean up our oceans and lower your carbon footprint with cuddly pictures of animals to prove it. But is anyone taking the time to read through their holdings to make sure they’re legit? Turns out not so much.

Corporate Knights examined nine top American and Canadian robo-advisors and investment apps that are promising values-driven investments. Some had genuinely sustainable offerings. Others might make you choke on your fair trade coffee.

Investing in big billion dollar companies is never going to be an exercise in pure virtue and we weren’t looking for that. Using the Corporate Knights database of roughly 6,000 corporations, we scanned for red-flag holdings – companies singled out for really egregious behaviour.

Luckily, there is a data revolution going on with more information than ever available about which companies are on or offside regarding a host of important issues – from plastic pollution and affordable access to medicine to animal welfare and anti-climate lobbying. It would be nice to see more advisors – automated or not – make use of these.

It’s early days for ethical robo-advisors, but there are already a few solid options. Editor’s choice? The best available right now are Swell and OpenInvest, if you’re in the US. For Canadians, well, robo-advisors may not be the best route for you until the companies behind them offer more truly values-driven options.

Our wish list: we’d like the best practices on personalization from Motif’s DIYs and OpenInvest, mixed with OpenInvest’s ability to vote with your shares, topped by the fiscal transparency of Wealthsimple and Swell. Stir in a dozen more sustainable screening tools and we’d be cooking.

In the meantime, here’s our take on nine robo-advisors and apps promising to invest in a better world today.

Wealthsimple

Canada’s largest and highest profile robo-advisor is in the US, too (Did you catch their interview with Margaret Atwood in their February mag?) Wealthsimple offers an “Invest in a Better World” option that pools together outside funds rather than building their own.

Assets under management (AUM): $3 billion CAD

% AUM values-aligned: N/A but they say more than a quarter of their clients have chosen an SRI portfolio.

Minimum investment: $0

Fees: 0.5% of first $100,000 invested

Open to both Canadians and Americans? Yes

★ World-changing impact: Next to no information upfront on the planetary impact of your investments beyond a few brief words describing the five exchange-traded funds that form the foundation of the socially responsible portfolio. Would be nice to see exactly how much carbon their “lower carbon” ETF saves the planet.

★★★★Shows how returns compare to business-as-usual:  Helpful graphs spell out how Wealthsimple’s SRI investments have fared on the market compared to “traditional investors” with more details on performance under FAQ.

★ Transparency: Wealthsimple’s FAQ lists the names of the ETFs in its general SRI portfolio (i.e. iShares Low Carbon or iShares Janzi Social Index), but you’ll have to dig offsite to find out what their holdings are.

★Customization: Wealthsimple encourages you to “invest in your values” but if you have a specific moral hankering, like going fossil-free or avoiding weapons manufacturers, you might want to look elsewhere. Any customization is more related to your financial goals than the particulars of your ethics.

Inside line: Wealthsimple was looking into offering custom-designed diversified portfolios composed of specific stocks instead of ETFs, but apparently the Ontario Securities Commission was going to require users to jump through additional hoops in the sign-up process, so Wealthsimple demurred.

★Green cred: Having iShares Low Carbon Target ETF might sound eco, but climate-concerned customers aren’t going to be keen on the fact that some of their coin is going towards climate obstructionists Berkshire Hathaway and Chevron (both rated F for anti-climate lobbying, according to UK-based non-profit Influence Map), as well as pipeline-pusher Kinder Morgan. Not sure how happy many of Wealthsimple’s SRI clients would be knowing they own shares in Imperial Oil and EnCana, too, thanks to iShares Janzi Social Index in the mix.

Newday

This uplifting app invites you to “invest with purpose,” letting you pick from about half a dozen portfolios – Global Impact (in line with UN Sustainable Development Goals), Ocean Health, Climate Action, Animal Welfare, Gender Equality and Fresh Water. Too bad their holdings raise a boatload of red flags

AUM: $1.2 million+

% of AUM values-aligned: According to their marketing, 100%.

Minimum investment: $5

Annual fee: 1% (unless you’re a student, then it’s $1)

Open to both Canadians and Americans? US only

★★World-changing impact: Newday offers more detail on why individual stocks were chosen for each portfolio than most (under Ocean Health holdings, you’ll find out IBM is making robots that clean the oceans and collect data). Still, those descriptions sidestep many issues of concern (see Green Cred).

★★★★ Shows how returns compare to business-as-usual: App users will note that each individual fund comes with a performance graph comparing earnings to date to S&P 500.

★★★★Transparency: You have to download the app to your phone before you can see their complete holdings, but app does make all your holdings easy to peruse.

★★Customization: Pick as many of their impact portfolios as you like, enter your preferred risk level and the algorithm spits out a “diversified portfolio just for you.” No apparent options for dropping or adding companies.

★Green cred: About as greenwashy as it gets. These guys claim to screen out firearm makers but turn around and make weapons-kingpin Boeing a top holding in their Ocean Health fund (23% of Boeing’s $93 billion in sales were from arms in 2017). Ocean Health is also padded with Proctor & Gamble stock – a company which Greenpeace labelled a top 10 contributors to ocean plastic (not sure that’s offset by P&G’s plans to make 320,000 ocean plastic waste-based bottles).

Most misleading of all is Newday’s Animal Welfare fund that claims not to invest in any companies that “partake in animal testing” or factory farming, meanwhile the portfolio is loaded with animal

testing labs and Big Pharma that regularly tests on animals (even if they have “best in practice” standards for that testing). Thankfully, the app seems to indicate it dropped Hormel, an industrial meat manufacturer repeatedly accused of animal cruelty.                                                                     

Motif

This San Fran-based outfit is sort of like a personal ETF maker. Anyone with a good (or bad) idea can create a motif with up to 30 stocks, and then presto, you can buy or sell that motif for $9.95—a heck of a lot simpler than having to buy or sell 30 individual stocks.  There are some questionable holdings in their user generated motif “Impact” options (Sustainable Planet, Fair Labour and Good Corporate Governance).

AUM $116 million+

% AUM values-aligned: N/A

Minimum investment: $250

Annual fees: 0.25%

Open to Canadians and Americans? Yes

★World-changing impact: Doesn’t tell you much other than that you’re investing in companies that either “actively practice sustainability to reduce their carbon footprint,” promote fair wages, safe working conditions, and job security or have “strong ethical track records to ensure accountability, fairness and transparency.”

★ Shows how returns compare to business-as-usual: There’s a graph with “expected” annual returns but no performance-to-date info or comparisons to benchmark.

★★★Transparency: Neat that they tell you which stocks were “removed” and which were added because you selected, say, its Sustainable Planet portfolio, but there are some questionable picks here (see Green Cred). Methodology is front and centre (Sustainable Planet scores are based on MSCI ESG ratings on two key issues: carbon emissions and product carbon footprint.

★★★★★Customization: While there are only three “impact” portfolios, Motif is the only one that lets you “build your own motif” with any 30 stocks or ETFs.

★★Green cred: Not so sure that fracking giant Chesapeake Energy Corporation or oil field services company Baker Hughes deserve to be top holdings in a green portfolio called Sustainable Planet. Clearly, they’re not calculating full life cycle of carbon emissions.

Swell Investing

New and young investors will definitely dig this playful and easy to navigate site, which offers up six themed impact funds loaded with hand-picked stocks related to zero waste, renewable energy, clean water and healthy living. The California-based startup has the backing of its seed investor, Pacific Life.

AUM: $30 million+

% AUM values-aligned: 100%

Minimum investment: $50

Annual fees: 0.75%

Open to both Canadians and Americans? Sadly, US-only

★ ★ ★ World-changing impact: Offers up specs on every company in its portfolios, explaining why, for instance, 4.13% of its Zero Waste Portfolio is invested in the carpet makers at Mohawk and what UN Sustainable Development Goal (SDGs) Mohawk meets.

★★ ★ ★ ★Shows how returns compare to business-as-usual:  Great example of how to be upfront about portfolio performance. Swell offers clear graphs on how each themed portfolio compares to S&P 500 (in case you’re wondering, they’re mostly beating benchmark).

★★★★ Transparency: No need to sign in blood before you see what you’re buying. Swell’s complete list of holdings are clearly posted for all to see, with blurbs on why each company was chosen.

★★★★ Customization: Beyond picking from half a dozen themed portfolios, you can actually remove up to three holdings from your portfolios, if you see a name you’d rather not have in there.

★★★★ Green cred: Since the stocks lining their funds are hand-picked rather than outsourced to vaguely sustainable ETFs, you won’t find any hidden Exxons or Lockheed Martins in your portfolio. Though, the fact that Bristol-Myers Squib is among the top-ten holdings in their Disease Eradication Portfolio did raise our eyebrows. The drug company languished in the bottom quartile on the latest Access to Medicine Index, losing points for not having equitable pricing strategies for 80% of its drugs targeting priority countries.

OpenInvest

Cool model out of San Fran founded by alumni of Bridgewater  (world’s largest hedge fund) and WWF. These guys position themselves as “Change.org, but with money.” Unlike other online advisors that offer up a limited number of fixed funds, this start-up is unique in tailoring your stock portfolio to be aligned with up a menu of 14 current “causes.”

 AUM: Estimated over $50 million

% AUM Values-Aligned: 100%

Open to both Canadians and Americans? For now, US-only. Unless you’re a Canadian institutional investor.

Minimum investment: $100

Annual fees: 0.5%

★★★★ World-changing impact: Maybe the coolest feature of this app is that it encourages you to flex your shareholder activism muscles by getting involved in proxy voting (voting that’s “until now, been blocked by fund managers, red tape, and a pile of paper packets”). FAQ also spells out the power of divestment in reducing demand, lowering share prices, as well as talk of “moral complicity” and changing the conversation.

★Shows how returns compare to business-as-usual: Since their portfolios are highly customized combinations of up to 14 values, we get that it’s not as simple for Openinvest to tell us how their portfolios have performed as it is for Swell and Wealthsimple. However, it would be helpful to know how well their investors have done to date and to fill us in on how much, for instance, divesting from fossil fuels could have pocketed us since inception.

★★★ Transparency: Detailed explanations of the methodology behind each divestment or investment cause. Since there are no set portfolios and tailored stock bundles are based on how many values you click on, it’s hard to get a sense of holdings until you sign up.

★★★★★ Customization: By far the most customizable of the automated SRI advisors. No need to pick and choose one value or another. You can choose divest/invest options from all 14 causes, including divesting from fossil fuels/gun violence/deforestation/carbon pollution/the prison industrial complex, etc. as well as choosing your positive screens, like investing in companies that “Stand Up to Donald Trump,” invest in refugees, are pro-LGBTQ, the list goes on. You can even tweak further by pulling in and out individual companies.

★★★★ Greed cred:  Lots of edgy divestment options like “Defund the Dakota Access Pipeline” boosts their activist cred. Though keep in mind that their starting universe is the entire S&P 500 and unless you choose to divest from fossil fuels, you may end up invested in the likes of ExxonMobil. But unlike the competition, they’ll strongly encourage you to get involved in voting in shareholder actions targeting (Monsanto, Disney, Apple have been targets in the past).

Stash

New York-based micro-trading app with over 50 funds, a half dozen of which are tagged under “mission and causes,” including Combat Carbon, Clean & Green, Equality Works, Water the World and Women Who Lead.

AUM: $125 million+

% AUM values-aligned: N/A

Minimum investment: $5

Fees: $1/month. All investment accounts $5k and over only cost 0.25%.

Open to both Canadians and Americans? Americans only.

★ World-changing impacts: Hard to say. Doesn’t tell you much other than some brief marketing speak (“Looking to enlist your dollars in the fight against climate change? Look no further.”

★★  Shows how returns compare to business-as-usual: No handy graphs to tell you how their “mission” funds have done compared to benchmark. Instead, there are hyperlinks to performance indicators on Yahoo Finance, etc.

★★Transparency: Stash only tells you the names of the outside funds it leans on (iShares and Investco, etc) and only a small handful of top holdings are listed. You’ll have to go sniffing around offsite to turn up full portfolio.

★★Customization:  Beyond choosing from the six cause-driven ETFs, don’t expect to tweak or customize your impact funds to ditch offensive companies.

★Green cred: No typical ethical investment screens against weapons makers or tobacco here. Dig up the Combat Carbon fund’s full list of holdings and you’ll find all the eyebrow raisers that appear in Wealthsimple (they both use  iShares MSCI ACWI Low Carbon Target ETF). That means you can also expect to own some of every top weapons maker (think Halliburton, Lockheed Martin, Boeing) with several controversial companies like Vale (responsible for a massive dam collapse in Brazil).

Coin

John Hancock/Manulife formally launched this “conscious investing” platform this month.  They specialize in investing in companies focused on eight impact areas aligned with the UN Sustainable Development Goals.

AUM:  N/A

% of AUM values-aligned: 100%

Minimum investment: $50

Annual fee: 0.75%

Open to both Canadians and Americans? US only

Shows how returns compare to business-as-usual: Since they just launched this week, we’ll cut them some slack for not having any info on returns to date.

★★World-changing impacts: Coin tells you lots of very general information on how your impact portfolio of choice invests your money in companies impacting one or more specific UN Global Goal. We’d love some more specifics on how holdings are making this happen.

★★Transparency: Coin talks up its transparency, but is it really necessary to make us fork over our SIN numbers before we get the names of more than five “sample” holding companies? General methodology is spelled out in more detail than some others, though ESG scoring system is proprietary and third-party rating firms aren’t disclosed.

★★★Customization: Coin limits you to picking three of its eight impact areas to create a “custom” portfolio of companies. However, if you really hate a company you can email customer service and request that they blacklist up to three corporations from your portfolio, which is better than most.

★Green cred: Sorry, but since Coin doesn’t divulge more than five “sample” holdings (unless you give out your SIN number), we have no idea how green their investments really are. Though community activists around 3M’s old perfluorinated chemical plant in Minnesota might take issue with 3M being a top holding in Coin’s Clean Water fund (in 2018, 3M settled a lawsuit filed by the state of Minnesota for $850 million after complainants charged that 3M had allowed chemicals to seep into Minnesota’s drinking water for decades). Also not so sure having Pepsi in the Clean Water basket reflects the choice of a new generation, either.

QuestWealth

Toronto-based QuestTrade has recently launched this new robo-advisor with an SRI option focused on three ETFs related to social and corporate governance, low carbon and clean tech.

AUM: QuestTrade has $8 billion AUM but no word on QuestWealth.

% AUM values-aligned: N/A

Minimum investment: $1

Annual fees: 0.25% on first 99,999 investment.

Open to both Canadians and Americans? Canadians only

Shows how returns compare to business-as-usual: QuestWealth was just launched three months ago, so we’ll cut them some slack – for now – for not posting returns to date.

★ World-changing impact: Don’t expect more than a quick one-sentence blurb about stuff like supporting businesses with a smaller carbon footprint.

★ Customization: None, beyond telling them your risk preference.

★Transparency: Pretty murky. QuestWealth offers zero up front info on whether it’s getting its ETFs from iShares or elsewhere and not one company holding is listed. You’ll have to share a bunch of personal info setting up an account before they’ll share all the names of the 10 funds used in their SRI portfolios. Though customer service reps may divulge a couple if you ask.

★Green cred: Tough to gauge when QuestWealth says zip about the companies that line their ETFs. But some snooping reveals their SPDR Low Carbon fund puts your money in all sorts of problematic holdings include climate action obstructionists like Chevron, Berkshire Hathaway and Phillips, as well as red-flagged Vale (behind the recent Brazilian dam collapse) and a sprinkling of coal companies.

ModernAdvisor

This Vancouver-based robo-advisor offers a “socially responsible” portfolio that invests in seven external funds.

AUM: N/A

% of values-aligned AUM: N/A

Minimum investment: $1,000

Annual fees: No fee for clients with accounts less than $10,000. Otherwise between 0.35% and 0.5%

Open to both Canadians and Americans? Canadians only

★★ Shows how returns compare to business-as-usual: Dynamic performance graphs are available online, however, they don’t let you know how they’re doing in relation to benchmark. That info is available upon request.

★World-changing impact: Not much info on your impact besides the fact that you’ll be “doing well by doing good” by investing in companies mindful of Environmental, Social, and Corporate Governance practices. Note: despite what’s advertised on the website, ModernAdvisor tells CK they’ve recently stopped donating 5% of management fees to the Nature Conservancy of Canada.

★★Customization: Not unless you pay. They do offer custom portfolios to clients who have over $150,000, otherwise, there’s a one-time $499 for lower asset clients.

★★★Transparency: Nice that they share detailed blurbs on all seven EFTs in play (including their screens). You’ll have to research offsite to find out ETF fund holdings.

★★Green cred: The good news is ModernAdvisor screens out weapons manufacturers and tobacco makers (unlike many other robos). Helps explain why MA isn’t invested in iShares Low Carbon fund the way Wealthsimple and Stash are. Still, many climate conscious clients aren’t going to dig the presence of Imperial Oil, BP, Phillips and others in its funds.

The post Is your ethical investing app upselling greenwash? appeared first on Corporate Knights.

ESG funds, which select companies for their broader environmental and social impact on top of performance, include a lot of big names whose business has little to do with reducing pollution, Greenchip president Cook said.

Traditional investments like Amazon.com Inc., Facebook Inc. and JP Morgan are often at the top of portfolios labelled ESG.

“When I talk to young people who are interested in the sustainable economy, I don’t think they’re thinking, ‘I want Netflix to behave better,’” Cook said in an interview July 9 with Corporate Knights. “I think they’re thinking, ‘Solar panels and wind turbines and (electric vehicles) and more efficient ways to reduce energy and reduce pollution.’

Cook, whose investment fund focuses on companies selling the “stuff” of the low-carbon or sustainable economy, said the difference between what ESG means and how some investors might perceive it has been growing with the expansion of ESG funds globally.

The current assets under management of socially-responsible investing and ESG funds grew by 25 per cent between 2014 and 2016 to reach around US$23-trillion, Morgan Stanley’s May report on the market, ESG Investing Goes Mainstream, says.

Almost 40 per cent of asset allocators use some kind of ESG measure in their investment decisions compared to just 20 per cent three years ago, the report says.

Investment funds in this space are led by equities that would appear to do well regardless of their impact on the environmental and society, Cook said in a note to Greenchip investors on July 9 on ESG indicators.

While there are over 400 U.S. stocks in a new offering from Goldman Sachs called the JUST fund, the top five positions are held by Amazon, Apple, Microsoft, Facebook and JP Morgan, Cook’s note says.

Whether this means ESG is making a difference for the environment and society is a tough question.

Morgan Stanley’s report from May says that ESG is having an impact. Overall, the amount of ESG disclosure is growing and ESG indicators are rising over time, it says. Interestingly, ESG indicators have risen in emerging economies in the 2010-2015 period, but declined in developed markets over the same time, the report says.

Cook is not so certain the approach is pushing markets toward a sustainable model.

“We need to keep investing in all this stuff — the traditional economy — but we also want to have a foot on the dock of the new economy,” he said.

For those who agree with Cook, the key is to differentiate between what companies sell and how companies behave, he said.

The ESG market rewards sound environmental and social behaviour. Amazon’s main businesses don’t involve a lot of air pollution, for example, compared to the rest of the economy, so its strong economic and ESG performance make it a good investment.

But other funds, like Greenchip’s, focus more on what a companies does. Do they replace competitors that pollute more? Are they building products that turn economies away from intensive resource use?

Some of the companies Greenchip invests in include Canadian Solar, rail company Alstom and LED-maker Signify, formerly Philips Lighting.

Cook advises to not just use the ESG tag but look for “sustainability themed” funds.

“They need to look past the label,” he said.

The post Looking past the labels appeared first on Corporate Knights.