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?
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.
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.
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.
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.
“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.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
