After finishing graduate school, Lanz, now 33, made his first foray into the financial markets in 2014. But instead of aiming solely to turn a profit with the $500 mutual fund he purchased, he wanted to make money while helping the environment. Like many millennials, Lanz is a responsible investor, a class of investors that choose to only deal in responsible, sustainable or ethical investment companies and products.
“Ethical investing really popularized around the time of apartheid. So investors in North America and throughout the world started to question their investment decisions and started… to allocate their resources elsewhere because apartheid didn’t align with their ethical values,” said Lanz.
“Responsible investment” and “sustainable investment” are popular terms now, especially after the United Nations released its supported principles for responsible investment (PRI) in 2006, he said. Responsible or sustainable investment includes but goes beyond ethical investing to also include investments that are good for the climate and the environment, as well as investments that promote human rights.
“Say reducing your exposure to carbon, for instance, fossil fuels might be one approach to responsible investing that may or may not align with someone’s ethics,” said Lanz. “I would define responsible investing as integrating environmental, social and corporate governance (ESG) criteria into the selection and management of your investments. That’s the general definition used behind the PRI and my organization and our international counterparts.”
Lanz is the director of research and communications at the Responsible Investment Association of Canada, an organization that guides investors on how they too can invest responsibly. The RIA also offers the PRI Academy in Canada, which offers certification for financial advisors to show their clients they have training on investing guided by environmental, social and governance issues.
“What we’re seeing is that in the past few years, for instance with the 2008-2009 financial crisis, there are studies that show… socially responsible funds performed better than conventional during the crisis. What that implies is that it’s a risk mitigation tool,” he said.
And yet, the idea persists that traditional investing — investing without regard for what companies are present in your portfolio — is always more profitable.
“I think that myth prevails because of lack of awareness,” Lanz said.
For his investment, he chose a thematic ESG mutual fund focused on the environment, which also screened out companies that invest in tobacco or weapons.
“It felt like the right thing to do. I didn’t even consider otherwise,” he said.
“When you think of environmental or socially responsible funds, you might think of something like clean tech or you might think of renewable energies, and those have been volatile, a lot of those stocks. But that’s not what socially responsible means, that’s not necessarily what environmentally responsible means… As I’m buying a mutual fund, I’m buying a diverse portfolio. So it’s not necessarily going to fluctuate like some stock that someone heard about in the news five years ago,” said Lanz.
He also adds that if investors fear pulling completely out of investments such as oil, they can invest in the oil companies that are performing the best when it comes to the environment.
“Some people think that ethical oil is an oxymoron,” he said. “We know this industry creates a lot of pollution and greenhouse gas emissions. Particularly in Canada, if we’re too nervous to pull out of energy because that’s 25 per cent of our stock exchange, if we’re too nervous to pull out of oil and gas, which companies are at least taking action on social and environmental issues and performing very well on these issues relative to their peers?”
When a company that doesn’t perform well with regards to its treatment of the environment causes an environmental disaster like an oil spill, the stock prices dip, said Rob Robins, founder, owner and analyst at Investing for the Soul.
“Anyone (who) has strong spiritual or religious beliefs would not want to see their investment support activities that are against those beliefs,” he said. “I don’t give advice on what they should buy. What I do in a very general way is help them assess their personal values and then apply them to investments.”
Robins says that, especially for the younger generations of investors, the environment and the climate are “paramount.” His advice is that anyone looking to invest should take a course at the college level on investing and personal finance to know whether options like mutual funds are worth investing in the long-term, especially when younger people have years ahead of them. Robins also warns that some advisors, brokers and people with mutual fund licences don’t all have clients’ best interests at heart.
“First thing is, spend a little bit of time just getting knowledgeable about investing, about personal finance. That’s critical. And then particularly for your reader who’s interested in evolving spiritually and wanting to see their investments put to work in a way that mirrors their values, then they should work in a way to do that,” said Robins. “The Responsible Investment Association of Canada, they listen to brokers and investment advisors throughout Canada who basically are oriented towards this perspective to helping clients invest in ways that reflect their values.”
Lanz says finding a suitable advisor is key to making responsible investments.
“You’ll want to make sure that your financial advisor understands how ESG issues connect to your investment decisions. And you’ll want to ensure that your advisor knows what responsible investment options are available to you. A good place to start is to log into the RIA web site riacanada.ca.”