Exploring ESG Investing Approaches: A Pathway to a Sustainable Future

The month of July 2023 set a new record as the hottest ever recorded, according to NASA. This news quickly spread worldwide, highlighting the pressing nature of our climate crisis. Beyond impacting Canada, the wildfires also carried smoke to northern states in the US. Additionally, July marked the end of the Global Warming Era and the beginning of what UN Secretary General Antonio Guterres termed "Global Boiling."

Despite these challenges, there's a silver lining. Young investors are increasingly drawn to ESG investments, which prioritize positive impacts on the environment, society, and business practices. These investors seek meaningful change and alignment with their values. This emerging generation of investors is reshaping investment approaches and elevating the significance of ESG principles. In this blog, we'll delve into the various ESG investing approaches and shed light on how they contribute to a more sustainable future.

Understanding ESG Investing: The Three Pillars

Before we explore the different ESG investing approaches, let's first understand the three pillars that form the foundation of ESG investing:

1. Environmental (E): This pillar focuses on a company's impact on the environment. Factors such as carbon emissions, water usage, waste management, and energy efficiency are considered. Companies that adopt sustainable practices to reduce their ecological footprint are more likely to attract ESG-conscious investors.

2. Social (S): The social pillar examines a company's relationship with its employees, customers, and communities. Issues like diversity and inclusion, labor practices, human rights, and community engagement fall under this category. Companies that prioritize fair treatment and well-being of their stakeholders tend to align with the social aspect of ESG.

3. Governance (G): Governance refers to a company's internal structure, leadership, and policies. Good governance includes transparent accounting practices, effective board leadership, anti-corruption measures, and shareholder rights. Companies with strong governance structures are better equipped to manage risks and make ethical decisions.

ESG Investing Approaches: Navigating the Path to Sustainability

1. Exclusionary Screening: This approach involves excluding certain industries or companies from an investment portfolio based on specific ESG criteria. For instance, an investor might choose to avoid industries like tobacco, firearms, or fossil fuels due to their negative impact on health, safety, and the environment.

2. Integration: ESG integration involves considering ESG factors alongside traditional financial analysis when making investment decisions. By incorporating these non-financial considerations, investors aim to have a more comprehensive view of a company's long-term prospects and potential risks.

3. Thematic Investing: Thematic ESG investing focuses on specific themes or trends that align with sustainable practices. Examples include renewable energy, clean technology, gender equality, and water scarcity solutions. Investors can channel their funds into areas that contribute directly to positive societal and environmental changes.

4. Impact Investing: Impact investing emphasizes measurable positive outcomes. Investors actively seek opportunities that generate both financial returns and tangible social or environmental benefits. This approach goes beyond avoiding harm and actively seeks to promote positive change.

5. Active Ownership: With this approach, investors use their influence as shareholders to encourage companies to adopt more sustainable practices. This can involve engaging in dialogues with company management, submitting shareholder resolutions, and participating in proxy voting to drive positive changes.

Final Thoughts

The historic heat of July 2023 serves as a pivotal moment, urging us to reconsider our relationship with the planet and with each other. ESG investing approaches offer a promising pathway to a more sustainable and equitable future. Now more than ever, investors have the opportunity to make a positive impact on the world while still aiming for solid returns. As ESG investing continues to evolve, it is shaping the investment landscape and encouraging companies to embrace responsible business practices, ultimately contributing to a better tomorrow for both investors and society at large.

- Kondwelani Kalinda, Associate Investment Advisor

Kondwelani Kalinda is an Associate Investment Advisor at Endeavour Wealth Management with iA Private Wealth, an award-winning office as recognized by the Carson Group. Endeavour Wealth Management provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Kondwelani Kalinda who is a Associate Investment Advisor for iA Private Wealth and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained here in may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.