Video: How to invest responsibly
But what are the criteria used to determine whether an investment is “responsible” or not?
In 2006, the United Nations clarified this concept by developing the Principles for Responsible Investment, or “PRI.”
According to these principles, responsible investing encompasses three factors, known by the acronym ”ESG”:
- environmental, especially issues related to climate change, resource depletion or water management
- social, including concerns such as human rights, child labour and indigenous relations
- and governance, which covers such areas as executive pay, board structure, diversity and inclusiveness.
Fund managers who use the ESG approach typically proceed in two ways.
First, they apply it when building a portfolio by favouring companies that have adopted ESG best practices and excluding those that are deficient in these areas – for example, companies without a plan for reducing their carbon footprint.
As well, some managers leverage shareholder engagement by exercising their voting rights, proposing shareholder resolutions, and actively encouraging companies to improve their ESG practices.
The best way to find out if a given mutual fund is managed using a responsible investing approach is to review the fund manufacturer’s responsible investment policy, with the help of your mutual fund representative.
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