The ESG ratings allow you to determine the degree to which your fund is
implementing ESG principles in investment decisions. This also allows you
to identify funds that don’t necessarily put ESG first but end up with a
quality ESG portfolio nevertheless.
There are over 100 metrics to evaluate the ESG qualities of a portfolio, so
investors can focus on areas of keen interest, all rolled up into the ESG
Quality Score, which allows for comparison across all investment mandates,
geographical focus, and asset breakdown. Fundata fund snapshots now shows
the ESG Quality Score as well as Exposure to Leaders & Laggards, SRI
Screening Criteria Exposure, and Exposure to Sustainable Impact Solutions.
Here’s an example of the ESG metrics you’ll find on a Fundata Fund
When sorting the data by ESG Quality Score, the first thing I noticed
amongst Canadian Equity funds was the lack of funds with a Responsible
Investing (RI) mandate in the top 20. In fact, as shown in the table below,
there are only five funds in the top 20 that invest first and foremost with
an RI mandate.
Does that mean that the RI funds aren’t doing a good job of carrying out
their mandate, or that the non-RI funds are actually looking to invest in
companies with solid ESG profiles? It’s probably more likely that the lines
between RI investing and non-RI investing are starting to blur. The top two
ESG performers are funds that track the Jantzi Social Index, which is not a
surprise. But look at the
and you see four of the big banks, two telecoms, an oil company, and a
railway. That’s exactly what you would expect from any Canadian Equity
fund. These aren’t just solar and water companies.
What’s happening here is that typical Canadian Equity funds looking to
provide strong returns and minimal volatility are looking for companies
with sustainable, long-term growth profiles. These are exactly the
companies that ESG principles and the MSCI ratings promote. RI investing
according to ESG principles has really turned into a great way to identify
companies that are built to succeed for a long time.
When looking for an RI fund, this makes it all the more important to, at
the very least, check the ESG Quality Score as opposed to simply relying on
the fact that the fund calls itself an RI fund. Not all RI funds are
created equal. Let’s take a deeper look at three of the top rated ESG
Meritas Jantzi Social Index Fund (RI mandate),
Beutel Goodman Canadian Equity Fund (no RI mandate), and
NEI Ethical Canadian Equity Fund (RI mandate).
Despite the overall ESG scores being fairly close, the Meritas fund is
doing the best job at avoiding ESG laggards and companies that are flagged
for SRI exclusions factors. This is likely because the Jantzi Social Index
eliminates certain companies right off the top. The Beutel Goodman fund,
operating without an RI mandate, doesn’t have the same exclusion criteria.
But again, in the search for long-term capital appreciation and sustainable
growth, it ends up holding companies that score well according to the ESG
ratings. The overall quality score actually comes in higher than the NEI
fund despite the fact that the NEI fund is better in the four sub-metrics
shown here. However, keep in mind there are over 100 sub-metrics that go
into the overall score.
Reid Baker is Director, Analytics and Data, at
Fundata Canada Inc., a leading source for investment fund information, and is Chairman of
Canadian Investment Funds Standards Committee (CIFSC).
Notes and Disclaimers
© 2017 by Fund Library. All rights reserved. Reproduction in whole or in
part by any means without prior written permission is prohibited.
Commissions, management fees, and expenses all may be associated with
exchange-traded fund (ETF) investments. Please read the simplified
prospectus before investing. ETFs are not guaranteed and are not covered by
the Canada Deposit Insurance Corporation or by any other government deposit
insurer. There can be no assurances that the fund will be able to maintain
its net asset value per security at a constant amount or that the full
amount of your investment in the fund will be returned to you. Fund values
change frequently and past performance may not be repeated. The foregoing
is for general information purposes only and is the opinion of the writer.
No guarantee of performance is made or implied. This information is not
intended to provide specific personalized advice including, without
limitation, investment, financial, legal, accounting or tax advice.