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Prudent Investor Update, September 18, 2019

Is it really all about money?


While it seems obvious that investing is all about the money, the reality is that there are multiple objectives and considerations that come into play. In fact, investments that can be profitable while serving a higher purpose are getting more attention.

So- called “ESG” investing looks at how well the management of a company attends to Environmental, Social and Governance objectives. Climate change in particular is emerging as a key priority for many investors. When it comes to investing public funds, there is no doubt that ESG considerations take on added importance.

Investors can influence these goals in several ways. First, they can simply avoid investing in companies that are not meeting ESG goals. They can also use their influence as shareholders to encourage companies to make better decisions. Another tactic is to promote full disclosure, so companies are transparent about their environmental practices, which further encourages positive change.
At ONE Investment we believe incorporating Environmental, Social and Governance considerations into the thought process is part of our duty to our investors. Guardian Capital, who manages our Canadian Equity portfolio takes this responsibility seriously.  Their portfolio managers take environmental, social and governance considerations into account when looking at companies, and they pay close attention to the shareholder voting process.  

Guardian has also hired a specialty ESG research firm to help identify concerns. One of the key challenges is that ESG issues do not always surface for consideration by mainstream investors because they may not be material to the valuation or growth of the company. And yet, understanding these issues may be critical from an ethical perspective or to get a more complete understanding of the company.

Annual shareholder meetings allow investors to elect directors and vote on specific issues, which can be ESG related. Guardian uses a professional proxy voting research firm, which specializes in reviewing proxy voting issues, developing policies to address governance issues and promoting best practices with regards to social and environmental issues. These proxy voting research firms are broadly supportive of initiatives such as the ‘Task Force on Climate-related Financial Disclosures‘ and generally support any measures that promote responsible behavior in relation to environmental and social issues.  Their research helps provide Guardian with a consistent basis for every proxy vote they cast, backed up by well-thought-out analysis.   

Guardian also limits exposure to resource-related companies that tend to have a bigger carbon footprint. As these companies also tend to be more volatile, limiting investments also meets their mandate to minimize risk. By systematically holding a lower weight in these sectors, Guardian implicitly biases their allocations towards more environmentally friendly industries.

At ONE Investment we believe that ESG is a key consideration when we select or evaluate external managers.  As we hire new managers as a part of the ONE Investment Prudent Investor offering, ensuring  they deal responsibly with ESG matters will be a priority.