It’s always critical for investors and their advisors to understand the material risks that may affect the companies they hold in their portfolios. But in times of uncertainty and greater volatility, it’s absolutely critical. Material risks include financial risks, but they also encompass the environmental, social, and governance (ESG) risks that fall under the umbrella of responsible investing.

Investors are increasingly aware of this, with responsible investing funds reaching a new high of more than $56 billion according to Morningstar’s Canada Sustainable Funds Landscape 2024 in Review. Additionally, the Responsible Investment Association’s 2024 Canadian Responsible Investment Trends Report lists that asset managers’ top reasons for considering responsible investing factors are the two that are likely most important to retail investors: to minimize risk over time (77 percent) and to improve returns over time (63 percent).

At NEI Investments, where responsible investing has been an integral part of the investment process for decades, Adelaide Chiu, Vice-president and Head of Responsible Investing, says that although 2024 global flows into sustainable funds were down by about 50 percent compared to 2023 figures, the last quarter of the year saw a recovery, and full-year asset levels were positive.

“That, to me, indicates the interest in responsible investing in the fund landscape itself, and from an NEI perspective — with most of our funds following a responsible approach to investing — we’re still growing year after year,” she says. “What we differentiate with is the responsible investing lens, and we’re continuing to grow — especially in this turbulent market — so it’s positive.”

Chiu points out that the exponential growth in responsible and sustainable investment funds experienced five years ago has moderated — something that’s typical whenever there’s a proliferation of products in a specific area — but that doesn’t mean it’s fading away. A similar exuberance followed by moderation happened with exchange-traded funds in the past, and they remain important building blocks within retail and institutional portfolios.

Responsible investing, she says, has proven its worth, and asset levels are settling into a baseline. As that happens, investors will likely become more discriminating about what they want from responsible investments. They’ll seek out experienced investment teams with the ability to parse qualitative, non-financial data, to see through volatility and market noise, and to reliably assess the risks that may affect a holding.

Standing out with a proven, differentiated process

At NEI, responsible investing includes exclusionary screens, ESG evaluation, proxy voting and corporate engagement. These approaches are included in the firm’s investment decisions and contribute to a track record of repeatable, consistent results.

NEI’s 2024 Responsible Investment Report highlights the hundreds of company evaluations conducted annually, with almost 12,000 proxy items voted, 210 companies engaged, 100 hours of due diligence meetings with 20 subadvisors, and four impact mandates launched within one year.

Meanwhile, the firm prides itself on transparency. For example, NEI was one of the first Canadian asset managers to make its proxy voting guideline public. Chiu says that influenced peers to become more transparent as well. Regulators have joined the push for transparency, requiring firms to provide their proxy voting guidelines to any investors who request them.

As part of its commitment to getting to know holdings at a deeper level, the NEI team makes a point of establishing long-term relationships with executive management teams.

“We have engagements with them on a one-on-one basis to talk about sensitive topics, such as how companies can improve their strategies, what opportunities lie out there that maybe their competitors aren’t aware of, and the best practices for companies that want to…aim to be a leader within that space because they know incorporating these positive attributes can benefit their business,” she says.

Chiu offers, as an example, NEI’s engagement with Amazon Web Services. Recognizing the tremendous resources required to power AI, alongside its promise, NEI has been speaking with senior management about water usage in particular.

“If they don’t have the adequate resources, if they don’t have access to water, or if they’re not thinking about the future costs of having access to water, it will impact their future growth,” Chiu says. “They may not be thinking about the longer term viability of future cashflows, but we do.”

Telling different stories can give advisors an edge

A “differentiated view” with “differentiated products,” as Chiu puts it, allows advisors to tell clients different stories that they can relate to and that therefore strengthen relationships. Many more of these stories are contained in NEI’s annual Focus List , recently released for 2025.

“A lot of those companies will resonate with advisors. They’ll probably hold them in their portfolios. And with the Focus List, they’ll be able to understand other issues that perhaps investors are not focused on. It gives them an advantage,” she says.

“Even in the face of market volatility, advisors can offer their clients comfort that they continue to move forward on their responsible investment objectives.”