Ethical Investing Interest High, Grasp Low: Study

It happens to the best of us. You're at a dinner party and the host brings up a subject that everyone at the table seems to be an expert on but you. So, you nod agreeably and secretly swear to hone up on international politics, the World Cup or the hottest new food trend in order to keep up with the conversation next time.

If you're an investor, the above scenario is something you might have run into when it comes to the topic of socially responsible investing. The good news is that you're not alone. A report in June from the Responsible Investment Association (RIA) showed that even though just over three-quarters of investors surveyed are interested in responsible investing (RI), 73 per cent have little or no knowledge of what the movement is all about. According to the RIA, Canada's trade group for responsible investments, the study reveals a compelling "RI awareness gap" and highlights "...a significant gap between investor interest vs knowledge about RI."

Still, almost three-quarters of those surveyed said they buy socially responsible brands or check product labels for sustainability.

So what is responsible investing? The term is certainly popping up in investment circles with increasing regularity over the last several years. While the phrase hits all the right notes for some, it's still important to understand just what being "socially responsible" means in the context of investing if it's a path you're considering.

According to the RIA, socially responsible investing "…refers to the incorporation of environmental, social and governance (ESG) factors into the selection and management of investments." In other words, before buying stocks in a company, investors would not only consider a fund's performance, but would also value a corporation's pursuit of "green" practices, its history of philanthropy and how it treats its work force, among other things.

Responsible investing also takes into account gender equality. The RIA's research report showed that Canadian investors value parity between men and women, with 92 per cent of respondents indicating they believe men and women should receive equal pay for equal work. Around three-quarters said they believe companies should disclose how much they pay women versus men.

Perhaps one of the most significant findings of the report is that clients are willing to turn understanding into action. The study found that more than 80 per cent of investors would like to allocate some portion of their portfolio to RI, with 77 per cent believing that companies with good environmental, social and governance make the best long-term investments.

Breaking it down on a demographic basis, the RIA research found that younger investors tend to be more interested in ethical investments, with 85 per cent of millennials (which the RIA categorized as aged 18-35) reporting interest. That was followed by Generation X (aged 36-54) at 80 per cent and Baby Boomers (aged 55+) at nearly 70 per cent.

Overall, the study underscores the ever-increasing desire among investors to maintain and expand their wealth in socially progressive ways. Understanding what that means can help you determine if it's the right fit for you as an investor...or even just help you get in on the dinner conversation next time around.