What is Socially Responsible Investing? Interview #3 with Melissa Koehn

I recently caught up with Melissa Koehn, District Vice President of Retail Sales for Mackenzie Investments to assist clients in understanding more about socially responsible investing.

Windmills are a great source of renewable energy

Jeff: Thank you for taking the time to be part of my interview series, Melissa. Let’s start with some basics. There are a number of responsible investing terms and acronyms such as SRI, ESG, ethical investing, sustainable investing, and others. Can you break down the terms and what they mean?

Melissa: There are many acronyms used to describe responsible investing. SRI is probably the most common one, it stands for socially responsible investing or sustainable, responsible and impact investing (which is how we used to define it at Mackenzie). This is a pretty general term and can mean any industry investment / company that is considered socially responsible.


Socially responsible means that the company is held accountable to balance economic growth and the welfare of society and the environment. Another acronym is ESG, which stands for Environmental, Social and Governance. These terms can be used interchangeably but many feel ESG is more all-encompassing and specifically measures these 3 factors (E, S & G) in determining the sustainability and societal impact of an investment, business or company.


A couple of shorter ones are SI (Sustainable Investing) or RI (Responsible Investing). At Mackenzie, we now refer to our team supporting the space and the products within it as “Sustainable Investing”. We felt that this was the simplest way to communicate to investors what we do, and it is fast becoming the most widely acknowledged way of defining the space.


Jeff: The first sector that comes to mind is clean energy/renewables. What other industries fall into responsible investing?

Melissa: When screening for high standards in the ESG area, almost any company can be considered socially responsible (with the exception of weapons and tobacco) if the company ranks higher in those areas than the peer group and is working to improve them all. Over the years a ‘Green or Environmental economy’ has developed and this includes any company that is actively participating in the transition to renewable energy and working to contribute to a reduced carbon footprint. The Green Economy consists of 6 main sectors: Clean Energy/Technology, Energy Efficiency, Sustainable Agriculture, Sustainable Transportation and Sustainable Water.


Jeff: How popular is the field of responsible investing and what is the foreseeable growth rate?

Melissa: Our industry continues to see rapid growth in this space. From 2019 to 2020, the growth rate was 55% over one year (source: IFIC). While we can’t predict necessarily what the growth rate will be in the future, there is tremendous interest in the space from both advisors and investors – the growth that we saw in 2020 has continued into 2021.


Jeff: What allows a firm/investment to be able to call itself ‘socially responsible’? Do they need to meet the criteria of a certain regulatory body?

Melissa: In Canada, the RIA (Responsible Investment Association) is the industry association for responsible investing. RIA members include asset managers, asset owners, advisors and service providers who support the mandate of promoting responsible investment in Canada’s retail and institutional markets. Mackenzie is a part of the RIA, as well as various other industry associations and collaborations.


Jeff: What type of investment products are available that incorporate responsible investing?

Melissa: Individual stocks, bonds as well as mutual funds and ETFs are all available as responsible investments.


Jeff: Should I expect lower returns by investing in this sector?

Melissa: No actually, quite the opposite. If we look at the last 1, 3, 5 and 10 year numbers in the MSCI v the ESG counterparts, the ESG indices show stronger performance. So there is evidence that screening out companies that rate low on ESG criteria actually improves overall return.


Jeff: There is a myth that only millennials are interested in this type of investing. Is this true?

Melissa: Yes that is a myth. Recent studies show 75% (RIA investor opinion survey from 2020) of Canadian investors are interested in socially responsible or sustainable investing.


Jeff: More and more investors are buying these products because they align with their personal goals. How does an investor find companies that have stated climate change goals and can report their impact in real numbers?

Melissa: Asking their financial advisor is always a good way as they have access to all the industry data and research.


Jeff: Some of the largest supporters of renewables can be the oil and gas industry. How does an investor sort through all the data and put aside biases when investing?

Melissa: The oil and gas industry has sometimes received a bad rap for seemingly wanting nothing to do with renewables. That is not actually always true. Specific companies, such as BP and Shell, have begun to announce more aggressive targets for cutting their emissions and transitioning to a low carbon world. We believe it is only a matter of time for other firms to follow suit.


Jeff: Thanks Melissa. I appreciate you taking the time to clarify the SRI space and debunk some of the myths surrounding the topic.

Melissa: You are most welcome, Jeff. Thanks for inviting me to be a part of your interview series.

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