Responsible Investing and Charitable Giving
Parallel Approaches to Social Change
We find that responsible investing allows Canadian to align their personal values with their financial future.
Since 1983, social values research conducted by Environics has tracked changing mindsets and norms in Canada, and analyzed how these views influence brand perceptions, product preferences and purchasing behaviours. Environics interviews thousands of Canadians each year and in 2021, we found that Canadians who give to charities, on average, donate $1,120 per year. These individuals are more likely to be retired and affluent. They own their homes and feel confident in their long-term financial health. Canadians who are donating to charities are highly engaged with their investments, following them frequently, and are more likely to be working with an independent financial advisor. They are also more likely to have taken more action to fight climate change and reduce their own personal carbon footprint over the course of the pandemic. These Canadians are also very likely to say they either currently own or have seriously considered responsible investments. Our research reveals that the top reason responsible investments appeal to Canadian investors is because they believe these products can have a positive impact on the world. RI makes them feel better about the kinds of investments they are invested in and provides a way to incorporate personal values into their investments. Canadian investors take social action multiple ways through donating to charities, paying more for environmentally friendly products, and exploring other areas of their lives where they can have an impact, including RI.
Investor intuition that RI products can be a vehicle for social action is supported by in-depth analyses of investment portfolios. One concern for prospective responsible investors is environmental impact. Many Canadians may be surprised that investment portfolios have an enormous carbon footprint. For example, the MSCI World Index carbon intensity score of 133 tons of CO2 emissions per $1M in sales is more than double the MSCI World Low Carbon Leaders Index2. For the individual investor, the annual carbon footprint of an average investment portfolio is larger than the combined yearly emissions of raising a child, taking multiple round-trip flights and driving a car. Sources like FossilFreeFunds.org calculate the carbon footprint of individual mutual funds so investors can compare and select investments with reduced footprints. Investment manufacturers in Canada are now offering low carbon investments which can decrease the carbon footprint of an investment anywhere between 50% to 70%. While Fancy may have a point that these products could be better, it is possible to reduce a portfolio’s carbon footprint and satisfy an investor’s urge to take social action beyond traditional charitable giving.
Investors say the most important reason they would invest in responsible investments is to have a positive impact on the world. However, there are many other reasons why Canadians are interested in RI and this interest should not be confused with an act of charity. These insights provide financial advisors a real opportunity to provide greater value to clients by understanding their motivations and working with them to explore the multitude of investment options available to help achieve both financial and personal goals.
1 Arno Riedl & Paul Smeets, 2017. “Why Do Investors Hold Socially Responsible Mutual Funds?” Journal of Finance, American Finance Association, vol. 72(6), pages 2505-2550, December.
2 MSCI Index Carbon Footprint Metrics. Carbon footprint of flagship MSCI Indexes as of June 30, 2021
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