The changes required for current environmental challenges are closely linked to the investment sector. You may be familiar with ESG funds, but do you know how to choose a so-called socially responsible fund? The criteria are multiple, and the financial planner is often trusted to find funds that meet our values. Although having laudable intentions, not all ESG funds can boast of being ethicals. The field of responsible investing is relatively new, and all players want their place, which brings many challenges for the investor to make a wise choice.
The financial sector has a leading role in the various global climate and environmental problems through its direct contribution to business growth. When you invest in funds, you, in turn, become an actor in this growth environment. Hence the importance of educating yourself on the composition of your funds.
Businesses are increasingly accountable for their environmental footprint. Some will be concerned about limiting the pollution they generate or trying to reduce their carbon footprint.
Others will design their entire business model on conducting environmentally friendly business activities. For them, the important thing is to have a positive and lasting impact on future generations while being economically viable. If you want to make a difference through your investments, it is the latter that must be predominantly present in your portfolio. In response to climate change, the European Environment Agency considers in its 7th Environmental Action Programme that investment is one of the main pillars to support the green economy (European Environment Agency, 2015, par. 6). The investment choices you make today have long-term implications. They are your opportunity to play a leading role in the rapid transition needed regarding current climate challenges.
Two main types of investments are available if you want to move towards investing according to your values: socially responsible investment (SRI) or investment according to environmental, social or governance (ESG) criteria (The Canadian Press, 2021, par. 1).
Investors who choose ESG funds can do so based on several criteria but should also include value judgments. For example, Baillie Gifford conducts its ESG analyses based on three criteria: management intentions, business practices and the treatment of stakeholders such as customers, employees, shareholders and the community (Barcelo, 2021, par. 13). ESG funds are rather conservative at the management level. They are offered in a beautiful image so that investors feel they are putting their money in a responsible fund. These predominantly defend high yield in the short term, which investors are eagerly looking for. But to achieve such returns, fund managers regularly include polluting or non-socially responsible industries in so-called ESG portfolios. That is why the investor should still conduct research and make value judgments based on the products and services of the funded company.
In recent years, the financial sector has been talking about impact funds. Trusts that fall into this category are tasked with including companies that are fundamentally concerned with the positive social, environmental, and economic impact in a sustainable development context.
Investors generally expect short-term financial returns at all costs. However, with the unprecedented climate and ecological crisis that we collectively experience, investment is starting to change shape. Financial returns can no longer be viewed solely on the basis of speed of return. It is possible to act on several levels and to invest in a truly responsible way by having rather medium or long-term performance objectives. For example, by integrating the qualitative aspect with the quantitative one. The idea is not to simply assess the risk / reward ratio in numbers, but to combine all social and environmental aspects into a more holistic view.
Impact funds are more investments aimed at longer-term benefits. Doing as little harm as possible is the mission of most ESG funds. Some ESG funds also value long-term positive impacts. Impact funds go even further and make it their mission to generate as much positive an impact as possible.
It can be difficult for the investor to see clearly, and we suggest doing extensive research and asking questions of his financial planner before choosing a fund. This will allow us to know which industries are part of the fund, to validate whether those are responsible according to our criteria, and to confirm whether, overall, these funds correspond to our values.
The return offered by the TreesOfLives impact fund differs from ESG funds if we consider the cumulative aspect of offsets and lasting impacts. In addition to the projected return of 7% annualized or more from year 10, it offers three additional types of return.
The investor will be able to offset his carbon footprint and receive credits certified by a third party, have a measurable impact on biodiversity, and the 17 Sustainable Development Goals. Thus, in addition to obtaining a monetary return, the investor becomes a key player in the fight against climate and ecological crises.
TreesOfLives enables those who choose to invest in degraded land restoration projects to track the impact of their investment in a measurable and traceable way. Thanks to the data available in the field, they can view regular updates on the progress of projects. In this way, investors have a fair understanding of the positive effects generated by their financial contribution. This transparency is a unique feature and allows investors to have traceability of their financial acts.
TreesOfLives Impact Fund delivers financial returns as well as social and environmental impact, which we believe is the true definition of responsible investing. Transparency is essential to allow investors to make informed choices. It is no longer just a question of acting to mitigate the harmful effects of polluting industries, but of acting to have a sustainable social and environmental impact and equity for future generations. Learn more about TreesOfLives' business model.
European Environment Agency. (2015, October 6). Climate change and investment. https://www.eea.europa.eu/fr/signaux/signaux-2015/articles/le-changement-climatique-et-les-investissements
[Barcelo, Y. (2021, 1er février)] Année remarquable pour l’investissement responsable. Finance et investissement. https://www.finance-investissement.com/edition-papier/produits-et-assurance-edition-papier/annee-remarquable-pour-linvestissement-responsable/
The Canadian Press. (2021). Investors are betting more on ESG funds. Business. https://www.lesaffaires.com/mes-finances/placement/les-investisseurs-misent-plus-sur-les-fonds-esg/622805