From December 7 to 19, Canada will be hosting the UN conference on biodiversity (COP15), an international conference on the loss of biodiversity around the world. This is a perfect opportunity to take a fresh look at the question: what can we, as individuals, do to become part of the solution to the major challenges of our era?

Part of the answer might already be in your investment portfolio – or could be there, pending a few decisions on your part.

1. Responsible investing: a way to take action on three levels

Suppose you are an investment manager and you have to choose between two investments. The first is a manufacturer of leading-edge solar panels located in an up-and-coming economy. The second is a fossil fuel company gradually beginning a transition to “greener” solutions. A no-brainer, right? Now let’s say that there are some doubts about the first company in terms of working conditions and corporate governance, while the second company is exemplary in these areas. This is the kind of balancing act required by responsible investing. And that’s why the concept encompasses not just environmental considerations such as climate change, but also social and governance issues. Which explains those three letters you may have heard of: E (environmental), S (social) and G (governance) – ESG.

So by using a responsible investment approach, you can take action on more than one level.

2. A common frame of reference: the PRI

Since 2006, a common frame of reference has existed for asset managers: the Principles for Responsible Investment (PRI) defined by the United Nations. This is a set of six principles by which portfolio managers commit to taking concrete action to incorporate ESG issues into their investment decisions and practice, and report on this to their stakeholders. By the end of 2021, the PRI had close to 4,000 signatories representing about US$140,000 billion in assets under management. If you are interested in responsible investment, a first step might be to check that your fund managers are PRI signatories. Your advisor can help you with this.

3. A multifaceted approach

When you want to invest responsibly, your first thought might be to exclude certain companies from your portfolio, such as those in the fossil fuel industry. And in fact, this kind of screening is one of the techniques used by asset managers (many offer “ex fossil fuel” mutual funds, for example). But there are a number of other techniques, too, as shown in the following table. In particular, some managers create products around specific themes, such as energy transition, drinking water supplies or responsible waste management. Others may try to change companies “from within,” sometimes by starting a dialogue, sometimes by resorting to shareholder activism.

4. Lower risk, higher returns

Countless studies seem to indicate that, far from reducing a portfolio’s performance, responsible investing could actually enhance it. Why? Because taking ESG criteria into account helps to identify investment risks that would otherwise fly under the radar and might eventually undermine the return on investment. When the PRI organization undertook an analysis of 2,000 academic studies, the results showed that the incorporation of ESG considerations has a decisive impact on the creation of shareholder value in an investment portfolio.

So instead of reducing your long-term growth potential, adopting an ESG approach might help you optimize it instead.

5. Seventeen goals to transform our world

Finally, if you would like to ground your thinking in an even broader view of sustainable development, note that the UN has also identified the 17 most-critical sustainable development goals for this decade. These issues, which go beyond climate change alone, are taken into account by some portfolio managers.

Now, where do you start when you want to make a difference through responsible investing? The first step would probably be to talk to your advisor, who can show you some investment products specifically designed for this purpose, as well as mutual funds that, while not necessarily labelled as such, are managed according to responsible investment principles by PRI signatories.