What is Socially Responsible Investing?
**This is a sponsored post written by me on behalf of RE Royalties. All opinions are my own.
Do you consider yourself to be socially responsible? Is sustainability important to you? What about the environment? Do you try to reduce waste, support ethical businesses, and prevent climate change? Chances are that you answered yes to some of the above.
Now, what if I told you that you could further your positive impact based on how you choose to invest? Thanks to socially responsible investing, you can.
While socially responsible investing is a relatively new concept, it’s quickly taking off and proving to be much more than just a popular trend. Not only does it have the staying power, but it’s easy to start investing sustainably with various companies. Ready to learn more? Here’s what you need to know about socially responsible investing.
How does socially responsible investing work?
At first glance, the idea that your investment choices can have a positive impact on the world may seem a little far-fetched. However, once you break it down and really understand how socially responsible investing works, it all makes sense.
Socially responsible investing is, essentially, being selective about your investments to the point where you choose to support companies based on their values and how they operate. Now, don’t worry, you aren’t expected to be able to figure this all out on your own. Companies are ranked by their ESG (Environmental, Social, and Governance) risks and those with the highest rankings are good for responsible investing portfolios.
Factors that are taken into consideration for a high ESG include things such as carbon emissions, waste disposal, water management, workplace safety, data security and privacy, and tax transparency. Companies who are involved in tobacco and weapons or have had severe controversies would have a lower ranking and should be avoided if you want a socially responsible portfolio.
By choosing to invest in companies with high ESG, you are promoting ethical and sustainable business practices. Ideally, as these types of sustainable business practices continue to be rewarded and invested in, other companies will follow their lead in an effort to keep up.
Although the idea of being a socially responsible investor may sound complicated, it’s incredibly easy these days as there are exchange traded funds (ETF), companies and bonds that focus on being green.
Renewable energy investing and green bonds
One of the most recent opportunities to become a responsible investor came from RE Royalties who offered 5-year term green bonds with a 6% interest rate (calculated annually and paid quarterly). In the First Tranche, the company issued 5,452 Green Bonds with a principal amount of $1,000 per green bond for total gross proceeds of $5,452,000.
This product is eligible for registered accounts such as RRSP, TFSA, RRIF and RESP. With an attractive interest rate and the ability to purchase it in various accounts, it was extremely popular with the public and exceeded expectations. Proceeds from will be used to finance or re-finance renewable and sustainable energy projects that will reduce or offset green house gas emissions and assist in reducing the impact of climate change.
Some people might be concerned about a product that has a guaranteed return from a company they may not be familiar with. But, when you do the research, you’ll understand why a company such as RE Royalties is worth paying attention to.
Bernard Tan, CEO and co-founder of the Vancouver-based company came up with the idea in 2013 when he was looking to build a better future for his child. He wanted to provide renewable energy companies with financing which would help them grow their business.
While doing research, he quickly realized that there were a lot of different barriers. One model that he thought would work was royalty financing where investors get a percentage of the company’s future revenue in exchange for their investment. The problem was, there was no company that offered royalty financing for the renewable energy sector. Odd, considering every other sector had access to this kind of funding.
Realizing there was a gap in the market, Bernard started to do more research and formally started RE Royalties in 2016 with Peter Leighton, one of the leading minds in Canada when it comes to renewable energy, and also a winner of Canada’s 2020 Clean50 award. In 2018, the company went public and started trading on the TSX Venture Exchange.
With more than 80 royalty projects around the world, RE Royalties is creating a better future by providing renewable energy companies with innovative financing. Not only are they helping their clients, but investors will know that they’re also making a positive impact on the world by investing through RE Royalties.
Is responsible investing safe?
Responsible investing may sound like a trend, but it’s emerged in popularity thanks to the investors who, on top of wanting to see a return, also prioritize the concept of making a difference.
As of July 2018, more than $22.89 trillion global investments are considered to be socially responsible. Of that number, $1.5 trillion comes from Canadian investors and these numbers are only continuing to grow making it clear that responsible investing isn’t going away any time soon.
At the end of the day, responsible investing isn’t necessarily any riskier than any other investment. In fact, according to a 2015 study done by Dr. Tessa Hebb of Carleton University, they have the potential to be a safer investment option in the long run.
How to invest in a socially responsible way
While you could technically do the work and research yourself, the easiest way to get started in sustainable investing is to invest in socially responsible ETFs, or green bonds.
I should note that there is no standard definition of the requirements needed to make an investment socially responsible. A company could still have a large carbon footprint, but because it’s smaller than those in its field, it could still be deemed a responsible investment. For this reason, it’s important that you take the time to look into the companies or funds available to make sure that they do in fact align with your values.
Green bonds are still relatively new, but there will likely be more demand for them in the future. If you want to invest in a responsible way, take a look at RE Royalties’ green bonds. Alternatively, the company is also publicly traded on the TSX Venture.
At the end of the day, ethical investing comes down to personal choice. While it is still a relatively new investment option, there’s no doubt that it is gaining popularity around the globe as studies have shown that responsible investing is no riskier than traditional investments. If you’re looking for new ways to help create a positive impact in the world, socially responsible investing just might be the way to go.
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