Is your Retirement Plan really building what you want?

It’s that time of year when investment managers start calling, and people take pause to think about retirement planning. This year, Junxion’s Garth Yule got to thinking about his financial planning—and what a complete plan should consider. Here’s his take on financial planning with a triple bottom line.

You can’t invest in your kids’ future by putting fuel on the fire that threatens it.

I am turning 40 this year. Some of my peers that finally have some disposable income are considering how they should invest for their futures, and their kids’ futures (spurred on by a change in perspective that sometimes comes with having children). Many of them correctly identify laissez-faire consumer capitalism as the leading threat to the potential future well-being of the next few generations of humans, and are therefore evaluating different Socially Responsible Investment (SRI) funds to find the right combination of ethical standards and financial returns—because you can’t invest in your kids’ future by putting fuel on the fire that threatens it. A question my friend posed to me over Facebook, copied below, is typical of the concerns I hear from people in this mid-life demographic:

I have pasted a screenshot of what [SRI fund name] looks like. My expectation is that there is at least a certain degree of green-washing going on. Presumably, a socialist critique would eviscerate the notion that one could invest in the global stock market “ethically,” period. But let’s just say I wanted to be pragmatic about it—that I have reservedly accepted I live in a capitalist system, and that I want to be able to retire at 65 at (today’s) middle class level, I want my kids to go to university, and I just want to know that my investments aren’t… evil. What do you think, is this portfolio meeting that requirement?

Ultimately, the “best” investment fund is a choice based on personal values and priorities.

There is a lot of fairly sound, pragmatic information available to evaluate the investment criteria and performance of Socially Responsible Investment funds. The UN Principles for Responsible Investment provide the authoritative framing of what ‘responsibility’ means in the context of the financial industry; Triodos Bank in the UK and Vancity Credit Union in Canada are good examples of what it looks like to follow these principles in practice. Professional advisors can help you, but ultimately the choice about which fund is ‘best’ is a personal one, and relies on making a judgment call based in your personal values and priorities. Some people are most interested in social criteria like labour standards, others on environmental performance, others still on emerging ‘clean technologies’ or climate change adaptation strategies.

If you are clear, personally, on what social or environmental outcomes should be achieved by investing your money, you can ask some direct questions to a qualified investment professional:

  • Is there a ‘negative screen’—i.e. are companies excluded from the fund for any reason, and what are the criteria?
  • Is there a ‘positive screen’—i.e. what standards of performance must companies meet to be included?
  • Is the level of risk in the fund appropriate for my risk tolerance?
  • How are non-financial outcomes for the fund reported, to whom, and how often?
  • Does the fund actively encourage the companies in the fund to improve their social and environmental performance, for example through filing shareholder resolutions?

If you are satisfied that securing the future well-being of your family can be achieved by placing your money in one fund versus another, then answering these questions about investments is mostly a technical exercise of comparing different reporting standards and interest rates.

If I were a financial planner I’d ask my clients some pretty different questions in return:

  • What will have a greater bearing on your enjoyment of your retirement—an extra $500/month to live on, or still having a public health care system?
  • What will make for a better university experience for your kids—getting their tuition paid, or still having a functioning civil society? Or an intact local watershed?

These are obviously not either/or choices, but it is absolutely true that the ecosystems, institutions, organizations, and communities that work to provide us with public goods require significant ongoing investment. The dividends for investing your time and effort in protecting social systems and ecosystems are likely to be more significant over a lifetime than your financial investments. It’s just that the dividends are not exclusive to the investors, and the end products are not easily ‘liquidated’ into capital that can be reinvested elsewhere.

Can you imagine a ‘wealth manager’ advising you to volunteer in your community? Or learn local Indigenous history?

Wouldn’t that be a refreshing change—a ‘wealth manager’ at your local financial institution recommends that, based on your future goals, you should invest in an RRSP-eligible SRI fund, but round out your portfolio with at least one volunteer board member role, and learn the Indigenous history and place names in your city.

When I think about my own future, yes, I do want to have some sense of financial security, but I think the number of things that are ‘must haves’ in my future vision that simply can’t be purchased—clean air and water, a just society, an educated and politically engaged citizenry—drastically outnumber the things that I expect could be purchased for money.

More importantly, when the DOW index drops 1,000 points (or 10,000?), the value of community relationships and assets like local knowledge, civic associations, co-operatively owned businesses, or a strong arts and culture scene do not diminish: they may actually increase. In a lot of potential future scenarios, investing in assets and relationships that have no ‘market value’ will actually be pretty valuable.

While I am still enthusiastic that SRI has a role to play, I encourage you all to see that your portfolios are adequately diversified with non-financial investments!

 

Garth Yule is the Managing Director of Junxion’s Vancouver office. He helps our clients plan and measure their social and environmental progress.

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