61134864 Copyright : Andriy Popov

Incorporating environmental, social and governance factors into investment decisions is more than a niche practice for specialized funds and, in fact, has become a competitive advantage for asset managers, says Dominique Barker of CIBC Asset Management Inc.

“It’s not just for socially responsible investing funds that have negative screening. It’s for all investments and [helps to make] better investment decisions for our end clients,” says Barker, portfolio manager and senior analyst of equities at CIBC Asset Management.

“We’re finding that by understanding ESG issues and by engaging with management teams, it provides us with the insight that helps us actually determine the value and determine assumptions that we incorporate into our models,” she says.

Read: Is socially responsible investing ‘over-pitched and under-delivered?’

Environmental, social and governance factors are especially helpful as a tool for measuring risk at individual companies, according to Barker. She points to a case where examining a mining company’s corporate social responsibility report helped her identify rising costs and better understand its cost structure and value.

As a result, incorporating such factors routinely helps her choose companies to hold in a portfolio.

“If I have two companies, and Company A has a poor safety record in the energy industry, for example, and Company [B] has an average record, and both companies have a similar valuation, I’m obviously going to choose the one that has a better safety record,” says Barker.

“You can only determine that by actually looking at the ESG factors and reading the corporate social responsibility reports and actually measuring the risk on that factor.”

Read: Focus on specific ESG factors for most material benefit: report

At the same time, social responsibility failures can damage a company’s brand value. “Any bad news can quickly be reflected in a stock price,” says Barker.

That’s why looking at companies in terms of their products’ sustainability, employee or community relations, environmental performance and human rights practices is important. A failure or glitch in even one of those aspects that leads to bad press, she adds, can negatively affect the brand.

This article originally appeared on the website of Benefits Canada‘s companion publication, advisor.ca. It’s part of the Advisor2Go podcast. Listen to the podcast here.


Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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