Jan 23, 2020
Welcome to this week’s episode of the Rational Reminder! Today,
we get stuck into a commonly asked about investment topic –
socially responsible or sustainable investing. The show kicks off
with Cameron sharing some fantastic insights he gained from a book
he recently finished, The Undoing Project. We then delve
into the CalPERS story that was in the spotlight at the end of
2019. After that, we move the planning portion of our show, where
we tackle the topic of sustainable investing. Many prominent
Canadian pension funds have said that sustainability will be a core
part of their investing going forward. We explore why sustainable
investing has to mean lower returns, how this kind of investing
effects social change, and what the amount you need to give up to
feel good about your investments is. We also look at the
subjectivity of ESG ratings and how this relates to your values.
Ultimately, sustainable investing is about balancing the continuum
of views and values, how closely they can be matched, and how you
can do that in a diversified way. The sustainable label may not
meet your expectations of sustainability which is why finding the
balance can prove to be challenging. We round off the show by
sharing our thoughts on how to restructure your portfolio when it
comes time to live off of it. You don’t want to miss out on this
interesting show, so tune in today!
Key Points From This Episode:
- A book Cameron recently finished and how he applies these
lessons to his work. [0:01:08.0]
- More about the CalPERS story that broke in December 2019.
- Insights into active managers and actively managed funds.
- Vanguard is the first asset manager to surpass the six
trillion-dollar mark and other stats.
- Portfolio topic: The growth of socially responsible investing
in North America. [0:12:10.0]
- The main considerations to account for when looking at socially
responsible investing. [0:14:09.0]
- Two main sustainable investing strategies: negative screening
and ESG integration. [0:15:01.0]
- The relationship between ESG and expected returns when
controlling for common risk factors.
- The importance of ESG risk factor – where does the negative
premium come from? [0:19:45.0]
- Differences between exclusion and investor tastes and their
influence on expected returns. [0:21:40.0]
- Why the dispersion of preferences in the ESG industry is so
- Does sustainable investing lead to positive social returns?
- Two ways the lack of diversification of ESG investing hurts
- Understanding the trade-off between values: do all companies
use the same ESG filters? [0:31:42.0]
- The two major problems of not having consistent ESG rating
- Two things to consider when the time comes to live off of your
- Deciding how to change your asset allocation and figuring your
safe spending rate. [0:39:05.0]
- Why selling shares rather than receiving dividends does not
make you worse off. [0:42:23.0]
- Final thoughts on spending income and dividends.
- ‘Bad advice of the week’. [0:46:03.0]