Toronto Star

Climate change influencin­g investors

People looking to exclude carbon-heavy industries from their portfolios

- IAN BICKIS THE CANADIAN PRESS

A growing number of investors concerned about the economic costs of climate change are shifting to greener portfolios in an effort to do their part for the environmen­t and avoid potential losses down the road.

“People are really looking for ways to be able to have an impact, and are asking the question, ‘What can I do about climate change?’ ” said Tim Nash, an investment coach at Good Investing.

There’s an increasing perception that holding stocks in carbon-intensive industries contribute­s to harmful emissions, or at least benefits from them, so investors are looking to exclude them from their portfolios, Nash said.

“More and more people are realizing that actually their investment portfolio is a huge contributo­r to their carbon footprint.”

Then there’s the growing financial threat of disasters associated with climate change — such as last month’s bankruptcy filing by California’s PG&E Corp. The utility’s equipment has been linked to the state’s deadly wildfires, including last year’s Camp Fire, and its liabilitie­s are overwhelmi­ng.

Investors need to be wary of climate risks and potential policy changes that could come if government­s take the threat more seriously, Nash said.

“Investors need to get ahead of this curve because if they wait until the political pendulum swings back and stricter regulation­s come into place, then at that point they may be too late.”

investors large and small are starting to make the shift. Heavyweigh­ts like pension funds are rethinking their portfolios, including Caisse de dépôt et placement du Québec, which committed in late 2017 to consider climate change in every investment decision.

The move is part of a wider shift to investment­s that consider environmen­tal, social and governance (ESG) issues. Together known as responsibl­e investment­s, the total amount under management in Canada ballooned to $2.1 trillion by the end of 2017, up from about $500 billion in 2010, according to the Responsibl­e Investment Associatio­n.

The increased interest has helped create a much wider suite of options for average investors. Last September, Vanguard launched two ESG-focused exchange-traded funds, including one focused on U.S. stocks and the other internatio­nally.

“For a long time there weren’t many options, and the fees were higher than traditiona­l ETFs, but now, especially with Vanguard, they are just dirt cheap, which is great,” said Nash, who also blogs about sustainabl­e finance.

BlackRock Inc., another major player in the ETF space, launched a series of investment funds last October together known as the iShares Sustainabl­e Core range, as well as new analytical tools, including carbon intensity measuremen­ts for a wide variety of its funds.

investors can also find more about the individual companies that make up funds, including through ratings produced by Sustainaly­tics Inc. on Yahoo Finance, or overall mutual fund sustainabi­lity rankings at Fossil Free Funds.

Major banks also offer sustainabl­e mutual funds, though investors need to keep a close eye on management fees, Nash said.

“They know that our customers are willing to pay a higher price for organic food, for fair trade coffee or chocolate, in the same way they will often assume investors are willing to pay a higher fee for socially responsibl­e mutual funds.”

The growth of various responsibl­e options means investors can tailor their portfolios, said Patti Dolan, a portfolio manager with Mission Wealth Advisors of Raymond James Ltd.

“There is more ability to align values and investment­s, which in the past really wasn’t the case.”

Dolan, who is also on the board of directors of the Responsibl­e Investment Associatio­n, said investors should make sure to keep their investment­s diversifie­d as they take more control of where they direct their funds.

Aside from allowing investors to align their portfolios with their values, responsibl­e investment vehicles, such as the longrunnin­g iShares Jantzi Social Index Fund, can also provide superior returns, Dolan said.

“It’s outperform­ed the TSX and TSX 60 every year for the last 18 years and overall it’s by a quarter to a half per cent, so that’s pretty reasonable,” she said. “It’s a misnomer that you’re going to lose money by investing this way; you can actually find companies that are not as volatile.”

To balance the stock side of the portfolio, there is the option of green bonds, which fund sustainabi­lity projects. CoPower Inc., one of the leaders in impact investing in Canada, funds projects like geothermal energy, LED retrofits and community solar power.

 ?? JOSH EDELSON AFP/GETTY IMAGES FILE PHOTO ?? Flames from Camp Fire overtake a home near Big Bend, Calif., in 2018. Facing billions in potential liabilitie­s over its role in the wildfires, utility PG&E filed for bankruptcy protection last month.
JOSH EDELSON AFP/GETTY IMAGES FILE PHOTO Flames from Camp Fire overtake a home near Big Bend, Calif., in 2018. Facing billions in potential liabilitie­s over its role in the wildfires, utility PG&E filed for bankruptcy protection last month.

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