By Brent Vandermeer, April 15, 2019

Two years ago, a client asked me to design an investment portfolio that could help support a caring economy – one that treats people and the environment with respect and contributes to change where it’s needed most. The portfolio also needed to grow at a reasonable rate to support the client’s age-related expenses. Here are a few of the key considerations I worked through on my journey to implement this mandate.

A quantitative analysis

In building a portfolio like this, I needed to balance the idea of “doing good” with achieving the required rate of return. So, I started with the traditional negative screens to remove the typical “sin” sectors like guns, tobacco, defense and adult entertainment. I then filtered out certain undesirable sectors or businesses that have clear adverse effects on society and the planet. Recently, I’ve improved this process so I can see into a company’s operations to determine sources of revenue from various sectors or business lines, representation on its board, its diversity across employees, or its share voting structures.

A qualitative review

Next, I moved to a more qualitative review of the sectors and businesses I wanted to invest in. As I allocated capital to these companies, I implicitly wanted to support what they were doing. This required lots of research on which companies were contributing to moving the needle on caring for our environment and making society a better place. Clearly more judgment and less number-crunching were required at this step and frankly, it was the most difficult.

Fundamental analysis

Once I filtered down through the layers, I ended up with a list of companies to perform traditional security analysis on. Namely, what was the business model and growth plan? Who were the key players and managers? What were the valuations and growth expectations and was the company trading at an attractive entry point? I ended up with some companies I could watch for the time being and ones I’d be confident owning.

Building the right portfolio

I then assessed the client’s risk tolerance, goals and time horizon to decide on an asset allocation and deployment of this capital. I blended these carefully selected companies together with specific green bonds (ones required to use proceeds in specific ways that “greenify” a company’s operations or invest in clean sectors) and with traditional alternative investments (such as real estate, market-neutral hedge funds and commodities like gold) to build a robust and diversified portfolio.

The last step was a clear and disciplined monitoring process. This involved refreshing the quantitative data on how a company adhered to these socially responsible investing criteria but also to valuation and growth metrics. (And, on a periodic basis, I’m now rebalancing the portfolio to keep risks in line and to add new ideas or remove ones that aren’t working.)

Did I succeed in fulfilling my client’s initial ask? In the end, I believe I did – creating a portfolio that can achieve solid and consistent returns as well as satisfy the objective of investing in a way that contributes to making our world a better place.

This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.