{"id":2969,"date":"2020-05-12T00:00:00","date_gmt":"2020-05-12T00:00:00","guid":{"rendered":"https:\/\/www.rbcwealthmanagement.com\/en-us\/insightswhat-is-responsible-investing\/"},"modified":"2023-11-01T11:04:35","modified_gmt":"2023-11-01T15:04:35","slug":"what-is-responsible-investing","status":"publish","type":"post","link":"https:\/\/www.rbcwealthmanagement.com\/en-us\/insights\/what-is-responsible-investing","title":{"rendered":"What is responsible investing?"},"content":{"rendered":"\n

Responsible investing <\/span>(RI) has been around in one form or another for more than three decades. But interest has boomed in recent years, particularly with individual investors. Climate change, corruption, cybersecurity and a lack of gender diversity in companies are some of the concerns prompting many people to think about changing the way they invest.<\/p>\n\n\n\n

Responsible investment assets have skyrocketed in recent years as companies continue to innovate and strive for positive impacts.<\/span><\/p>\n\n\n\n

\u201cPeople are starting to care more about what a company does, and not just what its earnings are,” says Kent McClanahan, head of Responsible Investing for RBC Wealth Management.<\/span><\/p>\n\n\n\n

That sentiment, coupled with the data-backed realization that companies that pay attention to factors beyond their bottom line perform better in the long run, is pushing <\/span>responsible investing<\/a> <\/span>to the top of many investors’ minds, he says.<\/p>\n\n\n\n

What is responsible investing?<\/h2>\n\n\n\n

RI is an umbrella term <\/span>encompassing <\/span>several different<\/span> approaches used to deliberately incorporate environmental, social and governance<\/a> (ESG) considerations into an investment portfolio. These approaches are not mutually exclusive; multiple <\/span>strategies<\/span> can be applied simultaneously within the investment process. <\/span>T<\/span>here are four main <\/span>approaches<\/span> to<\/span> this data:<\/span><\/p>\n\n\n\n

1. ESG integration<\/h3>\n\n\n\n

ESG integration involves systematically incorporating material ESG factors into investment decision-making to identify potential risks and opportunities and improve long-term, risk-adjusted return. This is when investors consider more than traditional financial measures, such as the intangibles of a company’s ESG practices.<\/p>\n\n\n\n

\u201cThis approach considers risks that traditional finance might ignore,” McClanahan says. \u201cIncreasingly, these risks have outsized impacts on the value of investments. Investors who are not considering these factors may see increased volatility within their portfolios.”  <\/p>\n\n\n\n

ESG integration happens at the same time as traditional financial analysis, and focuses on the material extra-financial, or ESG, factors that are important to the future earnings of a company. E, S and G factors are examined in tandem with fundamental factors to define attractive investments with long-term returns in focus.<\/p>\n\n\n\n

\u201cESG integration goes beyond earnings, debt, ratios, and other items found on the financial statements,\u201d McClanahan says. \u201cIt\u2019s the information about how a firm operates its business, inputs used to make a product, how a firm treats its employees, and the way a company is managed. Material ESG factors could come to bear on the financials of a company.\u201d<\/p>\n\n\n\n

A few examples of ESG<\/a> factors include:<\/p>\n\n\n\n