Socially responsible investing — also know as ethical, green or sustainable investing — is the new buzzword in the financial world.
A growing number of institutions and individual investors seem to want to invest according to ethical principles, and the financial industry has been happy to oblige.
Today, investors can choose from a smattering of investment options that carry some variation of the sustainable label.
By one tally, sustainable investing has now grown to an eye-popping $31 trillion globally, and it’s easy to see why.
The industry’s pitch is very persuasive: sustainable investing is as good for your wallet as it is for your conscience.
But are sustainable investment products as good a deal as the hype would suggest?
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2:59 Investing with robo-advisers during recessions
Investing with robo-advisers during recessions
Does sustainable investing pay off?
Whether investing sustainably means sacrificing financial returns is the subject of debate among analysts and investment advisors.
Benjamin Felix, portfolio manager at Ottawa-based PWL Capital, for example, says both the data and the theory point to sustainable investments having lower expected returns.
As more and more investors buy up the stocks of companies deemed to be “good,” they push up the price of those shares, which necessarily reduces the returns investors can expect in the future, Felix said.
And because sustainable investors are guided by moral principles rather than mere financial metrics, they are less likely to ditch their underperforming sustainable stocks, which means their shares will stay overpriced.
Sustainable investors also necessarily have fewer investments to choose from, something that limits their ability to diversify their portfolios and diminish the risk tied to any one company or industry, Felix noted.
In addition, opting for sustainable investments often comes with higher fees, which eats further into returns, he added.
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Money 123: Canadians could be losing a lot to investment fees
Tim Nash, an independent financial planner and founder of Good Investing, offers a different take. A preference for sustainable companies, he argues, steers investors away from corporations that may become the target of government sanctions or consumer boycotts.
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Felix agrees that a company’s track record on issues like the environment and human rights can have an impact on the corporate bottom line. However, he believes the market is already quite good at pricing in those risks.
But Nash thinks sustainable investors are, in general, quicker to recognize that sustainability issues can have an impact on profits.
They are “ahead of the curve in recognizing these intangible values both on the upside, in terms of reputation, customer acquisition and employee attraction and retention … and also from the risk side.”
And while sustainable investing does come with less diversification and often higher fees, there are still plenty of investment options to choose from, Nash says.
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Money 123: Should you use a robo-advisor to invest?
Are sustainable investments actually sustainable?
Felix’s biggest reservation about sustainable investing is the criteria the industry uses to quantify sustainability, otherwise knows as ESG metrics.
The “E” stands of “environmental,” reflecting corporate conduct on issues such as carbon emissions and water pollution. “S” is for “social,” which looks at factors such as how a company manages its workforce and the labour practices in its supply chain.
The “G,” finally, stands for “governance,” or how a company governs itself, which includes issues such as who sits on the board of directors and how executives are compensated.
With a number of data providers compiling their own ESG ratings and indices, there are a number of different definitions and methodologies out there, Felix says. This can lead to confusion for both companies and investors, he adds.
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“If companies are not clear on what ‘socially responsible’ means and what’s going to be rewarded, then it’s going to really [be] for them to know what to do to get a better rating,” he said.
On the investor side, some may not realize that plenty of investment products sold as sustainable involve exposure to oil and gas companies, Felix notes.
“You better know that what you’re investing in is actually reflecting your views and values because there’s a good chance it’s not,” he said.
Nash believes that ESG investment products, as imperfect as they may be, still help move the needle in the right direction. But he agrees with Felix that investors shouldn’t buy into sustainable investments without looking under the hood.
“Don’t do it blindly,” he said. “You need to do your homework.”
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
