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Youssef Hamoda: Hello, I'm Youssef Hamoda, and today, I'm talking to Ian Tam. This summer, we've all been feeling the heat. Here in Canada, we've witnessed a record-setting wildfire season, while the rest of the world recorded the hottest summer ever. In all this heat, where does investing fit in? Today, we're talking about sustainable investing.
So, Ian, given the undeniable reality of climate change, what role will sustainable investing play and why?
Ian Tam: Well, thanks for a very well-prepared question, Youssef. You're absolutely right. As people will become more and more aware of climate change and the rising temperature of the earth, I think sustainable investing is going to play a pretty crucial role as we move towards a carbon neutral economy, specifically here in Canada. As the need to maintain sustainable practices increases, corporations are putting more and more emphasis on having sustainable practices within their organizations, and investors can make a difference by ensuring that capital flows or money flows towards those kinds of companies, which hopefully will make a net impact on society and the planet overall.
Hamoda: And in this heating climate, do you see sustainability gaining or losing traction? Like, will companies uphold their ESG promises?
Tam: Yeah, that's a tough question. So, I think, first of all, I think sustainable investing has gained traction. Certainly, in Canada, many of our largest pension funds are heavily integrated in terms of their sustainable investing practices. So, they've leveled up quite a bit. In terms of retail investors, like you and me, that want to invest in a mutual fund, we're still learning the ropes. So, many people are still trying to understand what ESG means, just like you did, and it's a bit confusing. It's a bit of a muddy water. But I think regulators, so the rule makers here in Canada, are trying to make things a bit clearer. Companies like Morningstar are also trying to educate investors on how to invest sustainably. So, I think the traction is there. It's gaining momentum. As for corporations upholding their promises to being sustainable, I think many companies are living up to their promises, not all of them. But I think as investors demand this from companies, they're going to start to look for companies with more sustainable practices than others. So, I think overall, we're heading in the right direction.
Hamoda: So, do you see sustainability becoming a guiding principle in the average portfolio?
Tam: Yeah, I think so. So, just like I said earlier, once investors are a bit more educated in how to invest sustainably and what it means, because it's not just yes or no, there's different, I guess, ingredients or different ways to invest sustainably – once we get more comfortable in how we want to invest, I think that it will gain some more traction. The other element of it that's pretty important is that when we invest, some people want to invest in line with their personal values, and that's important because the hardest part of investing is staying invested. And when you're invested in line with what you believe in as a person, your personal beliefs, often that may motivate you to stay invested for longer, which actually treats you better over the long run as an investor.
Hamoda: And when keeping these values in mind, often investors can run into a sea of false claims. How can I find companies that are genuinely intent on positive sustainable practices?
Tam: Yeah, that's a great question. I think what you're referring to there is a term that many people call greenwashing, right, so when a company promises something, and they don't quite live up to those promises. So, the best thing to do is probably to do your own research. So, companies like Morningstar provide ratings for companies, ESG ratings, as you will. You also want to look for companies or corporations that are quite transparent in what their policies are around sustainability. You also want to look at how they engage with investors. So, some corporations will openly talk to investors and ask, okay, what should we change about our corporate policy to make us more sustainable. So, those types of companies are more likely to live up to their promises if they're open to communicating with their investors.
Hamoda: Thank you, Ian. For Morningstar, Youssef Hamoda.
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