Summary: Socially responsible investing (SRI) is an ethical investment strategy that takes into account both potential profits and problems such as environmental decline and social inequality. In this guide, we’re taking a look at some of the pros and cons of SRI and offering a few stock suggestions for Canadian investors looking to generate financial profits and bring about social change. To invest in SRI stocks, Canadian residents can register an account at online brokers such as Interactive Brokers.
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What is socially responsible investing?
Socially responsible investing
In common parlance, socially responsible investing is often confused with similar approaches to investing, such as environmental, social, and governance (or ESG investing), sustainable investing, and impact investing. However, there are some clear differences between them.
For example, impact investing is a subset of SRI that focuses primarily on positive social outcomes, i.e., tangible social goods. In other words, impact investors will invest primarily in companies whose goal is to benefit society or the environment, for example, by providing as many people as possible with drinking water. Thus, impact investing is, in a way, a type of philanthropy.
Understanding socially responsible investing
Those interested in SRI go beyond the usual factors such as company performance and expenses when choosing what stocks to invest in — they also consider whether the company’s revenue sources, shareholder policies, and business practices go hand-in-hand with their personal values and ethics. Naturally, since the investing landscape is rather diverse, the approaches to SRI will differ drastically among individual investors.
For some, environmental concerns are of utmost importance, so their investment portfolios might prominently feature green stocks, such as wind- and solar-energy-focused companies. Those who prioritize social justice might invest in women-led businesses or buy shares in companies run by marginalized communities, such as people of color.
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Note, however, that socially responsible investing is as much about boycotting certain companies as it is about investing in others. For example, investors who have already invested in a company might opt out if it turns out that its leadership board holds values contrary to their own, for example.
SRI stock performance
How profitable are SRI stocks? Naturally, it is more difficult finding a company that ticks all SRI boxes than simply investing in a well-performing company regardless of its social and environmental policies. However, there is solid evidence that companies with positive sustainability practices generate solid incomes because they:
- Have lower cost of debt;
- Manage their finances and reputation better;
- Enjoy better employee sentiment;
- Etc.
Furthermore, there is additional evidence suggesting that things like SRI funds exhibit lower volatility than more conventional funds. In a 2022 article published in the Journal of Banking & Finance, for example, authors Sadok El Ghoul Aymen Karoui found that socially responsible funds exhibited lower risk compared to more traditional funds.
Similar evidence contracts some of the concerns raised in regard to the narrow scope of SRI investment options alluded to above. In a 2021 article published in the International Journey of Finances and Economics, authors Guillermo Badía and colleagues analyzed 26 SRI-focused companies that consistently outperformed companies from the S&P Global 100 Index.
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Top 3 stocks for socially responsible investing Canada
In this section, we’ll focus on the top 3 stocks for socially responsible investing Canada:
- TELUS (TSX: T);
- Innergex Renewable Energy (TSX: INE);
- Thomson Reuters (TSX: TRI.TO).
Note
Best Platform for Worldwide Stock Trading & Investing
-
Highly trusted multi-asset broker with clients in over 200 countries
-
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
-
Low commissions starting at $0 with no platform fees or account minimums
-
Easily fund your account and trade assets in 26 currencies
-
IBKR pays up to 4.58% interest on cash balances of $10k or more
TELUS
TELUS (TSX: T) is known as one of the largest telecommunications companies in Canada. But, SRI-focused investors recognize it for its social responsibility, too. In June 2023, for example, the company announced it would be investing $22.4 million in the city of Toronto.
TELUS also enjoys a good public and employee sentiment, having a rather diverse staff and, to quote strategy manager Latoya Pipe, fostering trust and driving change. The company has also achieved significant advancements in reducing the environmental impact of its operations, which led to a notable 40% decrease in net emissions in the past decade or so.
TELUS stock price today
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Innergex Renewable Energy
Innergex Renewable Energy (TSX:INE) is another attractive investment venue for socially conscious investors.
This $2.69 billion independent power producer encompasses a wide range of wind and solar assets, with hydroelectricity as its primary energy source. However, it is the company’s management team and its values that push Innergex up on the SRI scale.
In the company’s 2022 sustainability report, CEO Michel Letellier said:
“Our ESG performance is a pillar of our business strategy, and we will continue to put People, our Planet and Prosperity at the centre of everything that we do.
In the same report, Letellier further emphasized Innergex’s commitment to a long-term net zero plan the company seeks to implement by 2050 as well as its commitment to “diversity, equity, and inclusion.” Should the company’s plans come to fruition, its position as one of the top Canadia SRI picks will only solidify.
Innergex Renewable Energy stock price today
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Thomson Reuters
Thomson Reuters (TSX: TRI.TO) is a mass media behemoth, so investors are often surprised to learn about its terrific SRI characteristics, such as its insistence on renewable energy solutions.
However, the company is not environmentally conscious. For example, its TrustLaw foundation made a substantial effort to offer free legal and pro bono services to NGOs in over 190 countries, helping them save tens of millions in the process. Moreover, the company is known for its employees’ social and working initiatives.
In short, Thomson Reuters investors have the potential to benefit both from the company’s diverse asset portfolio and its high SRI rating as well.
Thomson Reuters stock price today
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
Pros and cons of SRI investing
Pros
- It can be a form of philanthropy;
- It can de-riskify your portfolio since SRI stocks and funds tend to be less volatile;
- You can enjoy a sense of fulfillment knowing you’ve invested in a positive cause.
Cons
- You might have to sacrifice profits for ethics, which is a negative for a lot of investors focused primarily on generating income;
- There is a lot of greenwashing. That is, some companies present themselves as environmentally friendly but are not;
- It might be difficult finding a suitable investment, as the definition of social responsibility can be quite subjective and ephemeral.
FAQs about socially responsible investing Canada
Is socially responsible investing viable in Canada?
Yes, socially responsible investing is a viable investment strategy for Canadian investors looking to generate profits while contributing to a cause.
Are SRI and ethical investing the same thing?
SRI and ethical investing are rather similar. The chief difference between them is that ethical values are often more subjective. That means that ethical investing is usually a more personalized investment strategy, while SRI investors rely on a more universally agreed-upon set of guidelines.
What are some socially responsible Canadian companies?
There are a number of socially responsible Canadian companies. Some of them include TELUS (TSX: T), Innergex Renewable Energy (TSX: INE), and Thomson Reuters (TSX: TRI.TO).
Best Platform for Worldwide Stock Trading & Investing
-
Highly trusted multi-asset broker with clients in over 200 countries
-
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
-
Low commissions starting at $0 with no platform fees or account minimums
-
Easily fund your account and trade assets in 26 currencies
-
IBKR pays up to 4.58% interest on cash balances of $10k or more
