ESG investing
Responsible companies making responsible decisions
Mackenzie’s responsible investing approach requires all the company’s portfolio managers to consider how ESG risk impacts investment in their assessment of the portfolio’s returns. istock.com
Sustainable investing proves its worth
Companies that are guided by robust environmental, social and governance (ESG) policies are weathering the current negative trend in equity values better than those that pay less attention to sustainability, and are providing investors with better downside protection, says Toronto-based Fate Saghir, head of sustainability at global investment fund manager Mackenzie Investments.
Mackenzie’s suite of sustainable funds are invested in responsible companies making responsible choices, which means investors have a better understanding of the inherent non-financial risks and are rewarded with less volatility than investors in their non-sustainable counterparts, says Ms. Saghir.
“Our priority is to deliver competitive client outcomes including analyzing all the factors available to us, financial and non-financial,” she adds. “When we look at the sustainability of a company, we consider not only the value of the products and services it brings to the market but also how it behaves as a responsible citizen of its community.”
“We work with advisers to get them comfortable with the sustainable investing space and help them understand how
these funds might fit within their broader portfolio as well as how to have the discussion with their clients”
While sustainable investing is not new to Mackenzie – it has a long history of considering all material factors that could affect the value of an investment – Ms. Saghir says the company now focuses on ESG as an opportunity rather than primarily a risk management tool.
It’s an approach clients seem to appreciate judged by a lower rate of redemption of sustainable investments – particularly mutual funds – compared to the broader market.
“This tells us that clients and advisers who invest sustainably – even when the market is going through one of the worst cycles we’ve ever seen – are committed to this type of investment,” says Ms. Saghir.
There is also emerging evidence from reports by Morningstar, the U.S.-based financial research firm, that sustainable investments are starting to emerge from the market slump.
“Morningstar’s Q3 sustainable investing landscape for Canada will show 64 per cent of sustainable equity funds and 63 per cent of asset allocation funds outperform their respective Morningstar categories, which reinforces the decision of all those investors who stayed invested during the market downturn,” says Ms. Saghir.
But the news doesn’t surprise her.
“This is what you would expect when talking about responsibly managed companies – and it’s the result of being invested in sustainable funds. Yes, performance was down for a quarter or two, but it’s recovering, and you are getting your downside risk protection,” she says.
Recent research commissioned by Mackenzie provided additional proof of the downside risk protection provided by sustainable investments, adds Ms. Saghir.
Mackenzie is also focused on promoting a better understanding of sustainable investing among investors and their advisers, she says.
“It’s a complicated space,” she says. “People’s values differ, which means their preferences for sustainable investing are very personal and subjective, and that can make it hard for them to make the right choices. They want their investments to be measured not just by returns but also by sustainability outcomes.”
The relative novelty of sustainable investment products can add to the complexity. In some cases, standards are still in flux as international oversight groups determine how to accurately measure ESG and companies decide which approaches work best for them.
There’s no ‘one-size-fits-all’ when it comes to sustainable investing, and for companies like Mackenzie, that means building a range of products to meet evolving client demand and working with policy-makers to set standards for responsible investing.
“We work with advisers to get them comfortable with the sustainable investing space and help them understand how these funds might fit within their broader portfolio as well as how to have the discussion with their clients,” says Ms. Saghir.
And that’s important, she says, because the sustainable investment space will become increasingly relevant to Canadian investors as the transition to a lower carbon global economy gathers pace and more companies realize the importance of including robust ESG policies in their operations.
While Mackenzie’s responsible investing approach requires all of the company’s portfolio managers to consider how ESG risk impacts investment in their assessment of the portfolio’s returns, more recently they have also begun considering climate change risk and looking closely at how vulnerable an investee company might be to climate change and what steps it is taking to mitigate the risk.
“There are companies that some of our funds are invested in that we believe face extreme risk from climate change because of the nature of their operations and the products they produce,” says Ms. Saghir.
But instead of simply divesting, Mackenzie engages with their senior leadership to understand what steps they are taking to mitigate risk and reduce their carbon emissions to net zero by 2050. If the plan does not seem viable, Mackenzie works with the company to help move them in the right direction.
“When it comes to Canadian companies in particular, we want to stay invested, we want to be at the table and have the conversation, and we want to understand the risks because they are part of the future of Canada’s economy and that’s important to us,” says Ms. Saghir.
To view this report on The Globe's website, visit globeandmail.com
To view the full report as it appeared in The Globe's print edition: ESG Investing