Financial legacy isn’t just about what ends up being bequeathed in a will; it’s about consciously choosing to invest your money in a way that aligns with your values. In a world where climate change is no longer a looming threat, but something we’re actively contending with, Earth Day provides a great opportunity to talk with family about how their investments impact the planet.
For many families, money isn’t something discussed openly or often, so broaching the subject of financial legacy can be tough. To help, here are some conversation starters about aligning investment portfolios with values.
The case for responsible investing
Until recently, responsible investing has not been common practice so older generations may not actively seek out ways to ensure their investment portfolio is socially and environmentally conscious. It’s important to communicate in a conversational and non-judgmental way how the choices of older generations will affect younger generations in the future.
It may feel awkward to bring up financial legacy with a parent or loved one at first. Discussing recent headlines around countries and institutions announcing major fossil fuel divestments or shareholder activism, and the rationale behind them, can be a good way in.
Questions to ask
- What causes do you care about, and would like to support? Is it the environment? Advancing equity for women and girls? Healthcare? Technology?
- Do you know what types of projects your investments are supporting now?
- What would you like your financial legacy to be? What difference would you like your money has made in the world?
- What would you want your grandchildren to know you cared about most,and actively supported?
Questions to expect
What is divestment and how does it work?
“Divestment” is the opposite of an “investment.” It means getting rid of financial assets issued by companies or industries that you don’t support. Major banks and institutions all over the world (the Catholic Church, New York City) are divesting or planning to divest from fossil fuels, both for values-based reasons and to avoid the risk of stranded assets as the world transitions to a low-carbon economy.
Why should I care?
Diversification is important. Canada’s economy is highly correlated with fossil fuels, including jobs, retirement savings, housing prices, the Canadian dollar. Doubling down and also having fossil fuels in a portfolio is risky. Some of the associated risks include increasing government regulation, carbon taxes, and litigation from communities affected by climate change.
Financial legacy involves developing a clear understanding of how your choices will impact the world for years to come. Divesting from fossil fuels helps reduce harmful emissions and improve air quality by helping to speed up the transition to a low-carbon economy.
Will my returns suffer?
Divesting from fossil fuels specifically does pay. In The Divestment Report, Genus Capital studied the data for fossil free and traditional portfolios over twenty years, and the fossil free portfolios performed as well or better than their carbon-heavy counterparts. Likewise, the same report included a seven-year study on sustainable portfolios (those without tobacco, gambling, arms manufacturing and other controversial industries) and determined that they also outperform their non-sustainable counterparts.
A recent study from the University of Waterloo showed that after divestment of fossil fuel investments, portfolio value continued to grow, leading to better performance. So, a values-driven, socially responsible investment strategy also happens to be financially beneficial.
What should I know before I divest?
There are levels to sustainable investing, from responsible investing, which considers (but doesn’t necessarily act on) environmental, social and governance factors, to impact investing, which actively puts money to work in initiatives improving the world. You can tailor your financial legacy to align with your values.
Starting a dialogue with friends and family about financial legacy and putting money to work for a sustainable future is a good place to start.
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