12 November 2021
Solutions Magazine, Manulife Investment Management
How this latest buzzword relates to investing.
With increasing awareness of climate change and social issues, more investors want to be able to invest in funds that align with positive outcomes for society and the environment. As a result, the demand for sustainable investment products is growing rapidly. In fact, a recent Morningstar report found that global inflows into sustainable investment products increased by 88 per cent in the last quarter of 2020.¹ By 2025, global assets in this category of funds are expected to surpass US$53 trillion, according to Bloomberg Intelligence.²
It’s great that investors are mindful of environmental, social and governance (ESG) related issues and that there is a widening range of sustainability-related products to choose from. However, new challenges have surfaced, including the risk of greenwashing.
Although the term “greenwashing” has been around for a while, it has become more mainstream recently. Simply put, greenwashing is the act of making false claims or providing misleading information about how environmentally friendly something actually is.
Let’s say a product is marketed as being made from recycled plastic. Sounds great, right? But when you read the fine print, it becomes clear that only one per cent of the material used to make it is recycled. While the statement about recycled plastic isn’t technically a lie, it misleads consumers into thinking the product is eco-friendly when, in fact, it’s not.
Greenwashing can also apply to investing and could happen in a number of different ways. It might be a misleading fund name or marketing that doesn’t reflect the true nature of a fund’s objectives. Other examples might include a lack of adequate information about a fund’s sustainability-related strategies, or a fund’s asset manager failing to meet sustainability-related commitments.
Ensuring sustainable products live up to sustainability claims is complicated. Due to how fast the demand for these types of products has grown, standardized frameworks are still being worked out, which should set out:
The reality is that most asset managers are financial experts and not necessarily environmental experts. However, greenwashing is less likely when asset managers are clear about their process and transparent about what their funds do and don’t do.
It’s also a good idea for investors to do their own research. Looking closely at what they plan to invest in, and learning about a fund’s asset manager, the fund’s contents, strategies and objectives, and individual companies’ practices can go a long way towards reducing the chances of being misled.
When investors are knowledgeable about the content of a fund, they are more likely to be able to make an informed decision.
Investors can also talk to their advisor about what’s important to them – about what they want to see in terms of sustainability. Here are some questions that may help you to begin a conversation with your advisor about sustainable investing:
When advisors have a clear idea of what their investors are looking for, they can help them more easily identify misleading information to help avoid the risks of greenwashing.
Dollar cost averaging and its benefits
If investors wish to reduce volatility and benefit from long-term growth when the markets move up and down, the passive strategy of dollar cost averaging may be a feasible choice.
Strike a balance in life, and most importantly, in your portfolio!
A balanced asset allocation usually provides investors with a smoother investment experience and perhaps helps protect them from selling equities after they have already fallen in price. If you believe that we are likely to enter a period of further economic weakness, we’re likely to be reminded of the importance of bonds in a portfolio.
Risk Diversification
There is no free lunch. But Risk Diversification comes close in investing. A diversified portfolio was shown to optimize returns with lower volatility in the long run.
Dollar cost averaging and its benefits
If investors wish to reduce volatility and benefit from long-term growth when the markets move up and down, the passive strategy of dollar cost averaging may be a feasible choice.
Strike a balance in life, and most importantly, in your portfolio!
A balanced asset allocation usually provides investors with a smoother investment experience and perhaps helps protect them from selling equities after they have already fallen in price. If you believe that we are likely to enter a period of further economic weakness, we’re likely to be reminded of the importance of bonds in a portfolio.
Risk Diversification
There is no free lunch. But Risk Diversification comes close in investing. A diversified portfolio was shown to optimize returns with lower volatility in the long run.
1 www.morningstar.com/content/dam/marketing/shared/pdfs/Research/Global _ESG_Q4_2020_Flows.pdf
2 www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillion-by-2025-a-third-of-global-aum
Dollar cost averaging and its benefits
If investors wish to reduce volatility and benefit from long-term growth when the markets move up and down, the passive strategy of dollar cost averaging may be a feasible choice.
Strike a balance in life, and most importantly, in your portfolio!
A balanced asset allocation usually provides investors with a smoother investment experience and perhaps helps protect them from selling equities after they have already fallen in price. If you believe that we are likely to enter a period of further economic weakness, we’re likely to be reminded of the importance of bonds in a portfolio.
Risk Diversification
There is no free lunch. But Risk Diversification comes close in investing. A diversified portfolio was shown to optimize returns with lower volatility in the long run.
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