ESG Investing: Profits with peace of mind
Municipalities are entrusted to invest public dollars and taxpayers expect these investments to meet high ethical standards. Fortunately, investments that focus on good environment, social and governance practices, also do better financially in the long run.
The focus on “ESG” (Environmental, Social and Governance) investing has become more prominent in the financial industry in recent years. It’s also central to the way ONE Investment operates.
“Although most people focus on the ‘E’ in ESG and think of it in terms of green-friendly funds, governance is really the lynchpin,” stresses Keith Taylor, ONE’s Chief Investment Officer. “If people with a good set of values are running a company, that will filter through the whole organization. Responsible management and good environmental and social practices will naturally follow.”
It also creates a more sustainable and profitable business. These are the types of companies that are more likely to have long-term success. This fits nicely into our equity mandates ,which emphasize long-term growth and greater certainty.
“ESG investing is a risk management tool,” Taylor adds. “These criteria all impact a company’s profitability. They reduce the risk for litigation, environmental issues and reputation problems down the road.”
ESG is a high priority for ONE Investment and was a key criteria in selecting its partners. Each one of ONE’s four portfolio managers include ESG analysis into their decision making.
“ONE takes a holistic approach to ESG. Rather than categorically excluding certain industries or sectors, we want our portfolio managers to look deeply at how a company does business,” Taylor stresses. “Take solar energy, for example. It sounds green, but if the manufacturer follows poor environmental practices then we don’t want to go there. It’s important to take an in-depth and comprehensive look.”
While there is no single industry standard, both MFS and Guardian Capital are signatories of the United Nations Principles for Responsible Investment (UN PRI).
Guardian manages the ONE Canadian Equity Portfolio and uses proxy voting strategies and in-depth research on ESG matters. Annual shareholder meetings are a key moment when investors elect directors and vote on specific issues, which can be ESG related. Guardian uses a professional proxy voting research firm, which specializes in reviewing proxy voting issues, developing policies to address governance issues and promoting social and environmental best practices. It also relies on a research firm that specializes in ESG analysis. This allows them to make informed decisions and directly influence the decision-making process in the companies in the portfolio.
MFS, which manages ONE’s money market and bond portfolios, evaluates nonfinancial factors in its decision making, like environmental impacts, employee well-being, supply chain management, product safety and workforce diversity.
ESG was top of mind when ONE was selecting new portfolio managers for the global equity and bond funds to be offered under Prudent Investor. Mawer Investment Management, which manages the ONE Global Equity Fund and Manulife Asset Management, which oversees the global bond fund, both demonstrated strong commitment and processes for incorporating ESG into their decisions. Like our other managers, Mawer and Manulife are also a signatories of the UN principles.
Municipalities are committed to the public good and public service. It stands to reason that their investments would also follow suit.