SUSTAINABLE

INVESTING

Stella P. Tsai
S_P_Tsai@outlook.com
 • What is Sustainable Investing?
• History
• Different types of Sustainable Investing
• Why almost everyone is already a Sustainable
Investor through their paycheck CPP contribution
CONTENTS • Three major dimensions of Sustainable/ESG
Investing (Environmental, Social and Corporate
Governance)
• Portfolio Makeover
• Comparison with conventional investing
• Q&A
 WHAT’S SUSTAINABLE INVESTING?

General Definition:

Sustainable Investing, Socially Responsible Investing (SRI), "green" or ethical investing, is any
investment strategy which seeks to consider both financial return and social/environmental good.
 HISTORY

• Originated in the 1770’s from Religious Society of Friends (Quakers), a faith-based community
• Refrain from investing in companies whose business “harm your neighbours”
• Avoid “sin” companies or “sin” stocks like toabacco, alcohol, gambling, disregard humans & animal rights
=> Be ethical and socially responsible to your community when investing

• By 2020, Sustainable Investing has become a global initiative, participated by the largest
sovereign wealth funds, pension plans (ie CPP) and endowments in the world.
• “Social Responsibility” has expanded to cover the environment and corporate governance.
• Your “neighbour” has expanded to the global village
=> Be considerate to the environment, society at large and its shareholders when investing
 DIFFERENT TYPES OF
SUSTAINABLE INVESTING

Making Good $
+
Doing Good

Donors willing to lose

money in exchange
for emotional (non-
monetary) returns
 YOU ARE LIKELY A SUSTAINABLE
INVESTOR ALREADY

• CPP Investments manages CPP contributions. have been doing Sustainable Investing for
10+ yrs. Achieved BOTH great net returns and world leader in Sustainable Investing.
 PENSION STYLE INVESTING

Pension multi-assets portfolio

(let me know if you are interested in setting this up) A conventional growth-oriented portfolio
CPP SUS TAINAB LE INVEST ING EXAMP LE
E NVIRO NMENT

• Environment:
Addressing Climate Change & Water

• Transition from fossil fuels to clean(er) energy

Þ Invest in solar farms, electric vehicles

• Operational efficiency
Þ Lower carbon and water footprint of factories and buildings ie.
LEED Platinum MNP Tower in Vancouver
 CPP SUSTAINABLE INVESTING EXAMPLE
SOCIAL

• Social:
Human Rights & Workers’ Safety in the Supply Chain
Þ In 2012, Bangladesh factory building collapsed and killed 1,134 garment
workers. (brands Benetton, Prada, Gucci, Versace, Moncler, the Children's Place,
Joe Fresh, and Walmart.)
Þ Since 2016, focus on cobalt mining for lithium-ion batteries used in cell phone
and tablets. Cobalt mining is associated with Child labour and poor safety
practices in the Republic of Congo, the world’s largest cobalt producer

Growing Wealth Gap

Þ Conflict arising from growing Wealth Gap between Rich and Poor
• “The gap is greatest since the 1920’s” – Ray Dalio (retired hedge fund billionaire)
 GROWING WEALTH GAP
Causes
Private Sector: CEO pay increased from 20x worker to 300x.
Public Sector: Monetary policy like lowering interest rates pushes up asset prices. People who
have assets see their assets increase in price. People who don’t have assets don’t benefit.
 CPP SUSTAINABLE INVESTING EXAMPLE
CORPORATE GOVERNANCE

Corporate Governance
• Links executive pay with long-term company performance to align executive interests
with shareholders
Þ pay bonus only when company does well over the long-run. Stock options can cause CEOs to
focus on short-term stock performance or to manipulate numbers to meet targets.

• Board Diversity
Þ Females on Board, visible minority on board
PORTFOLIO MAKEOVER
NEGATIVE SCREENING

A conventional growth-oriented portfolio

 PORTFOLIO MAKEOVER
NEGATIVE SCREENING

Screening out “sin” stocks and fossil fuels to achieve a “clean” or “cleaner” portfolio.
Fixed income
Þ BC’s Solar Share Community Bond (4%) or Toronto’s Sketch Community Impact Bond for Arts (3-4.5%) or
iShares ESG Canadian Aggregate Bond ETF (XSAB)

Canadian Equity
Þ iShare ESG MSCI Canada ETF (XESG) or Northwest Ethical Investments (NEI) Canadian Focused
Equity
• No fossil fuel free ETFs in Canada. The popular Jantzi Social Canadian Index is not much cleaner and has higher
fees than ETF above. Or Use an active ethical fund manager like NEI Canadian Focused Equity

U.S. Equity
Þ SPDR® S&P 500 Fossil Fuel Reserve Free ETF (SPYX)
• Fossil fuel-free. Great performance compared to benchmark. Lower fees than actively managed funds

International Equities + Emerging Markets

Þ Vanguard ESG International Stocks ETF (VSGX)
• Screen out all sin stocks and companies with ESG controversies. Only 2 yrs old. Good performance and low fees
 CAN YOU MAKE MORE
M O N EY BEIN G F O S S I L
FU EL- FR E E?

Yes.

SPDR S&P 500 Fossil Fuel Reserve Free ETF

(SPYX) outperformed its index by 1.07% and its
category by 3.57% over three years.

Category: Large Blend ETF

 Index: Russell 1000 TR USD
M O R N I N G S TA R ’ S
S U S TA I N A B I L I T Y
R AT I N G

The fact that the ETF’s 6.08 carbon risk score is lower but close to its
category average (7.93) says that fossil fuel-free is no longer an ethical
consider but a financial one by its peers
 PORTFOLIO MAKEOVER
POSITIVE SCREENING

Instead of screening out “sin” companies or the entire fossil fuel sector, focus on
adding sustainability leaders in each sector, called the “best-in-class” approach.
Canadian Equity
Þ iShare ESG MSCI Canada ETF (XESG) or Northwest Ethical Investments (NEI) Canadian Focused
Equity

U.S. Equity
Þ iShares ESG MSCI USA Select ETF (SUSA) and/or Horizons Global Sustainability Leaders ETF
• Companies that are ESG leaders and avoid ESG laggards. Ultra low fees. Horizon is ESG leaders in Nasdaq
International Equities
Þ iShare ESG MSCI EAFE ETF (XSEA)
• Companies that are ESG leaders and avoid ESG laggards. Ultra low fees.

Emerging Markets
Þ iShares ESG MSCI Emerging Markets ETF (XSEM)
• Companies that are ESG leaders and avoid ESG laggards. Ultra low fees.
CAN YOU MAKE MORE
M O N EY TH R O U G H
PO S IT IV E ES G
S C R EEN IN G ?

Yes.

iShare MSCI USA ESG Select ETF

(SUSA) underperformed its index by
0.47% over 15 years but outperformed
by 1.08% over 5 years.

It shows in recent years, positive ESG

screening started to make more money
than its benchmark and always made
more money than non-ESG ETFs.

Category: Large Blend ETF

Index: Russell 1000 TR USD
M O R N I N G S TA R ’ S
S U S TA I N A B I L I T Y
R AT I N G
 ADDING SUSTAINABLE
STOCKS OR SECTOR ETFS

• iShares Global Clean Energy (NASDQ: ICLN)

• Northland Power (TSX:NPI)
• Xylem (NYSE) - Water treatment technology

More: https://www.investopedia.com/articles/stocks/07/green-industries.asp
 SUSTAINABLE INVESTING PERFORMANCE
VS. CONVENTIONAL INVESTMENTS

• Financial industry research largely agrees sustainable investing makes more money
than conventional investing, especially recently
• Key point: sustainability factors do have a financial impact on investments

• Academic research still has mixed results

• Key point: financial data is available, long-term sustainability data is lacking
SUSTAINABLE INVESTING Carl Jung: “Who looks outside
dreams; who looks inside awakes.”
IS A PERSONAL THING…
Ask yourself

• Do you think sustainability has a

financial impact on your
investments? (financial return)

• Would you feel good about your

money doing good? (emotional
return, given that you are already
financially sufficient)

If your answer is “YES” to either

question, you should consider
Sustainable Investing
Q& A
APPENDIX
 THE INDIVIDUAL INVESTOR
WHAT DO ULTRA RICH PEOPLE THINK?
Donald Trump
Current US President, Republican, real estate tycoon (net worth US$2.1 billion)
• Wants to limit how much sustainable investments a person can have in their 401k (equivalent to RRSP) because he is afraid
people will lose money over “doing good” or “feeling good”
• Does not want green movements to keep hurting oil companies

Michael Bloomberg
2X New York city mayor, Democrat/Republic/Independent, Briefly a 2020 Democrat Presidential Candidate Co-Founder of
Bloomberg LP, financial data provider (net worth US$54.9 billion)
• Environmentalist
• His company, Bloomberg, is now providing ESG data, in additional to financial data. The goal is to link financially
material sustainability number to financial accounting numbers through SASB
Warrant Buffet, Bill Gates, Michael Zuckerberg
• No obvious stance on sustainable investing. Usually separate investing from sustainability. Pledge to give their wealth
away instead.