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Having been focused on socially responsible investing for more than two decades, Sucheta Rajagopal sees herself as “the OG of SRI.”

The investment advisor and portfolio manager at Research Capital Corp. in Toronto says advisors would gain a better understanding of environmental, social and governance (ESG) factors if they stopped looking at responsible investments with a narrow lens and started seeing them more broadly as a tool more akin to value investing strategies.

Ms. Rajagopal spoke with Globe Advisor about the early days of SRI and ESG, how the space has evolved, and how advisors can avoid getting caught up in “greenwashing.”

What was it like in the early 2000s, being one of the few advisors focused on RI and ESG issues?

Back then, no one knew anything about socially responsible investing. The most that people would ask me about it is if I didn’t buy tobacco stocks. I remember going to the [Prospectors and Developers Association of Canada] convention and I would be asking these questions about water use or Indigenous peoples in the area. You could just hear these people rolling their eyes, thinking to themselves, ‘These are not material issues – why is she asking?’

So, it has been very exciting for people like me, who have watched this space grow and develop, to see these issues that we always thought were very important, but were either ignored or discounted, now being taken seriously.

What is still keeping advisors from embracing ESG principles more broadly?

Advisors need to see it as a tool, but not a one-size-fits-all tool. I think the institutional investor community is on board, but I would say for the advisory community, it is still a bit challenging. They still think of ESG as a stamp of approval in that they want someone to say to them, ‘This is an ESG product so you can buy it.’ I think people often get very confused and that’s why they’re looking for that reassurance to simplify things.

Advisors need to move beyond wishing for that and think of it more like value investing. Value investing isn’t just one thing, and people who call themselves value investors look at different metrics. So, there is no reason why, with ESG investing, advisors can’t simply ask, ‘What is relevant to me and to my clients?’ and go from there.

How can advisors avoid getting caught up in attempts of greenwashing?

Labelling, or greenwashing, is a huge issue in today’s world. Clients and investors are being misled as to what they are investing in now.

It is a little bit like food labelling, in which you have labels like ‘natural’ or ‘low fat’ or ‘low sugar’ – well, relative to what? To address greenwashing, really, it’s just a matter of getting more information.

When a fund says it’s an ESG fund, [the fund company] needs to be very clear on what that means. Does it mean it has exclusions? And if so, what are they? Right now, that’s not very clear. A lot of them are saying the equivalent of, ‘This food is natural,’ without demonstrating how.

This interview has been edited and condensed.

- Jameson Berkow, Globe Advisor reporter

Must-reads from Globe Advisor this week

Demand for sustainable bonds set to surge

Equities have formed the basis of most new sustainability-focused investment products in recent years, but fixed income is finally gaining a foothold. The federal government’s first-ever green bond issuance combined with recent regulatory guidance are expected to drive the development of the ESG debt market in Canada. Jameson Berkow reports on transparency issues around the products and how much ESG fixed income investors should hold.

How separation, divorce and death can affect taxes

Financial advisors have a key role to play when clients experience the major life milestones of separation, divorce, or the death of a partner because it can affect the benefits they receive, the credits they can claim and the amount of taxes they may have to pay. Renee Sylvestre-Williams looks at how each of these scenarios play out when it comes to tax planning and what considerations need to be made ahead of time.

Why the CRA wants a closer look at investments in RRSPs

Buried in the more than 300 pages of the latest federal budget are three short paragraphs that caught many advisors by surprise. Starting in the 2023 taxation year, banks will be required to report the total fair market value of property held in the registered retirement savings plans and registered retirement income funds they administer. Jameson Berkow digs deeper into what this means for advisors and their clients as well as why accounts with particularly high balances and private securities are in focus.

Is now the time to invest in emerging markets?

With North American stock indexes still hovering around record highs, many investors are looking for opportunities in markets that are not valued so highly. That search may include emerging markets, but Russia’s invasion of Ukraine, the resurgence of COVID-19 in China, and a possible debt default in Sri Lanka have reminded investors of the risks involved. Terry Cain speaks to fund managers and strategists about the pros and cons of diversifying with developing markets.

Also see:

How to get financially exhausted new home owners back on track

Independent wealth firms recruit advisors with promises of freedom, technology and growth

Fed tightening sends U.S. ‘real yields’ to the brink of positive territory

How to advise clients who’ve been crypto-shamed

Central bankers cannot afford to ignore the pain in commodities

What you and your clients need to know

What happens if children are cut out of wills

Are you thinking about disinheriting your kids? Deciding to cut off children from a will come with financial, emotional, and practical considerations. It also shouldn’t come as a surprise to those disinherited. Mary Gooderham speaks with experts about why people chose to do this and how it can be done effectively, depending on where someone lives.

Are pipeline stocks a solid investment?

Canadian pipeline stocks were a big opportunity with stable cash flows and big dividends when energy prices were in the dumps earlier in the pandemic. Pipelines have limited exposure to volatile commodity prices because they transport oil and gas, not sell it. But the sector is now facing some stiff challenges. Should investors stay put? David Berman looks at how to approach this play.

Don’t believe the ESG marketing hype

Changing the world for the better is an admirable idea. But doing it through your investment portfolio? Not so much. Despite what marketing hype says, the growing number of investment funds that proclaim a higher moral purpose are doing little that will actually promote virtue. Ian McGugan breaks down why it’s difficult to define who is virtuous and who isn’t on ESG.

- Globe Advisor Staff