Don’t just focus on environment, BMO expert says

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A lot of people who want to invest in a green fund decide to put their money somewhere specific, such as energy, but the narrowness of that means they may be disappointed, experts warn.

Environmentally friendly funds are just a fragment of what’s going on in the investing world. There’s a lot more that people are not informed about and that involves ESG — environmental, social and governance funding.

“I think people are missing the bigger picture if they just focus on the environment,” says Paul Adair, vice-president managed assets group for BMO Nesbitt Burns. “When we look at this from an ESG perspective, what we’re finding is that this is actually a potential source of added value to the investment process.”

According to Adair, the “good managers” have taken an integrated approach of ESG investing, meaning they’re trying to look at environmental factors, social factors and governance factors and bringing this into their fundamental investing process.

There’s always been a concern that performance value would be compromised, but that’s not the case. Instead, there’s strong potential for adding value.

One of the managers BMO recently brought into its program is Enhance to offer an ESG or socially responsible investing mandate within its program. Enhance looks at companies and evaluates them from the parameters of the environment — how they were behaving from a social perspective in terms of consideration of clients, employees and stakeholders.

“Obviously (green funds or ESG funds) can be in an RRSP or in a traditional account as well,” says Adair. “Really what you’re looking at when you’re looking at these green funds or ESG funds is it’s a different approach in terms of investing.”

Adair says a lot of people who want a green fund decide to invest in a specific fund like alternative energy, but the narrowness of that means people could be disappointed.

With the ESG approach, all things are available in terms of the investment; the investment universe isn’t narrowed to one specific avenue. So it provides a more robust portfolio. There are a number of companies that offer the ESG approach, including Ethical Mutual Funds and Jantzi Research Inc.

“The best place to start with any approach on the financial side is to speak to an adviser who can help identify the different options that are out there for you, because each client’s circumstances are unique,” says Adair.

The most important thing to keep in mind is that ESG investments don’t necessarily compromise performance.

“Research indicates it provides comparable rates of returns and there’s a potential to find added sources of value because you can avoid future liabilities with the changing regulatory environment that people are faced with,” he says.

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