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The Purpose Approach to ESG Investing

A Modern Approach to Environmental, Social and Governance for Thoughtful Canadian Investors

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Today, we're one of the first investment firms in the world to embed ESG core factors across our entire investment process and at the foundation of how we think about building products.


When Purpose Investments was created, CEO and founder Som Seif believed there was a way for an investment firm with modern principles to support social good without compromising superior performance. If it placed its clients at the centre of its vision, Purpose would be a for-profit company that was also a positive social utility in society.


Through our core mission, we create success for investors like you. We do that by caring genuinely about the same things you do. And part of that care is making sure we integrate humanity with profitability.


As with all our core values, we design our solutions by knowing that responsible investment principles are a key factor in determining which companies will perform strongly in the long run. A modern investment firm can build value into its process by examining how the capital it invests is with companies that have demonstrated a strong commitment to sustainability.


Historically, environmental, social and governance (ESG) approaches have simply narrowed the scope of potential investments to easily trade values for performance. Investors were forced to accept weaker returns in exchange for responsible investment.


We were more strategic in our approach. Our difference lies in fully integrating ESG factors in a unique way that maximizes value — and your return — while also delivering a social good.

“Since day one, our core principles have been our north star. Our approaches to risk management, outcome orientation, accessibility, sustainability and transparency broke new ground. To create them, we built off robust historical data and the collective wisdom gathered from our personal experiences and years in the industry.”

- Som Seif, CEO


A genuinely people-focused investment business can only thrive with an ESG strategy that bolsters its existing mission. ESG factors help determine an investment's future performance, but more importantly, they're also a way to enhance investing beyond traditional financial reports.


A comprehensive ESG investing strategy looks past opinions and potential misconceptions about industries to capture a contextual, holistic view of how a company is impacting the world around it. By investing in companies with stronger ESG scores, we're able to make better decisions while investing in a more responsible future.


Research now shows companies that proactively manage environmental and social impact with strong governance models have proven to, over time, outperform those that do not. When Purpose first launched in 2013, the necessary data and research to create a quality, effective ESG approach — with the confidence to avoid negatively impacting returns — simply wasn’t available.


ESG was a defining project for us. We would be one of the first with this approach and we had to get it right. It deserved our time and attention — our goal was to embed responsible investing in a way no other firm ever had before.

So that's precisely what we did.


To make it happen, our unique approach started with taking the results of a deep research project to develop a robust way to utilize ESG data. Through years of testing, we designed an effective way to clean the data and apply it in a more nuanced way across the full range of industry sectors.


With improved data availability over time, we’re now able to incorporate ESG factors into a set of processes that create a better performance experience for all, avoiding compromise and adding value.


While many other firms have rushed to add ESG funds to their line-ups, we think that misses the big picture. How we govern our societies and steward our environment through increasingly risky times shouldn’t be an afterthought.


We took the time to get it right because, for the modern investor, we think it’s unacceptable to get it wrong.


“ESG is not becoming the sole determinant of investment decisions, but rather part of Purpose’s investing DNA. Investors shouldn’t expect dramatic shifts in short-term performance, but our target is for a positive trend to emerge over the long term. More information makes for a more robust investment process, better security selection and, ultimately, higher quality long-term returns. More data gives us the ability to make better decisions.”

- Greg Taylor, CIO

We aim to use robust ESG rankings to make smarter choices when all factors are equal. When there isn't enough data, we research and ask management teams difficult questions to ensure that the investments we choose to make also live up to our core values.


This is just the start. As with everything we design, we’ll continue to learn from our results and optimize to improve. We hope to lead an industry-wide sea change toward ESG solutions that includes creating a common language, scoring criteria and data-based decision making that we can use together to evolve our industry.


We've always proactively added modern, trail-blazing approaches to reflect our values and ensure that our core practices measure up to the bar we've set for ourselves.

Today our daily mission has grown to include the proven, high-quality ESG principles we'd always dreamed of bringing to market.


We've done it before through our ground-breaking focus on risk management, with our quality investment strategies and by being a catalyst for driving fair pricing to an industry that had never seen it before.


By realizing our goal of embedding sustainable investing and ESG into the core of Purpose, we believe we're not only demonstrating a new way to think about investment products.


We're showing how a modern investment firm can discover new ways to think.


FAQ

+ What is the approach to ESG at Purpose?

ESG refers to the three pillars of measuring the sustainability and ethical impact of an investment: the environmental, social and governance factors. We believe they help determine the future performance of that investment. It’s a way to enhance how we invest by looking beyond traditional financial reports.

Environmental Factors
  • Natural Resource Use
  • Carbon emisssions
  • Energy efficiency
  • Pollution/waste
  • Sustainability initiatives
Social Factors
  • Workforce health & safety
  • Diversity
  • Human rights
  • Data security
  • Community programs
Governance Factors
  • Board independence
  • Board diversity
  • Shareholder rights
  • Compensation policy
  • Business ethics

There are multiple approaches to sustainable investing, including:

  • Exclusionary: screens out companies engaged in “undesirable” businesses, such as weapons, tobacco, gambling, etc.
  • Impact investing: targeted strategies aimed at having a positive and measurable impact on society or the environment (SRI)
  • Integration: systematically combining traditional fundamental analysis with sustainability factors to tilt portfolio exposure (ESG)

We have a core belief that more information can lead to a more effective investment process, better security selection decisions and ultimately higher quality returns. We have carried out extensive research with our strategic partners that supports this conclusion — ESG is not an altruistic performance compromise. ESG can be accretive in roles as a positive screening tool and a risk management discipline. There are multiple approaches to ESG investing, but no one-size-fits all solution. Successful implementation rests on the nuance of its application and so that is what our approach focuses on.

+ How is Purpose applying ESG to its funds?

There’s no standard method to apply ESG principles to an investment. There are many ways to do it. Most asset managers are only dipping their toes in the water by creating ESG-specific funds. We’re diving in head first, embracing the idea and applying it to way we invest across virtually all of our funds.

We take an integration approach using ESG data as a factor in our investment-selection process. Just as we use quality, value or volatility as deciding factors, we use ESG for a more holistic view of an investment’s worth.

The idea is to not completely exclude certain companies or industries. When all else is equal, we choose investments with better ESG rankings. This tilts our exposures toward providing capital to corporate sustainability leaders. When there isn’t enough data, we research and ask the difficult questions of management teams when we meet with them.

In some cases, it’s a purely quantitative exercise, and in others, where data availability is more of a challenge, it’s more qualitative and judgment based. In some cases, it’s about sharpening security selection, while in others it’s about risk management.

+ How do I interpret your ESG ratings? What do they mean?

The ESG scores shown on our website are intended to illustrate how our products line up against a representative benchmark of underlying securities. We use customized benchmarks that are representative of the security selection universe, and analyze the distribution of ESG scores within the underlying holdings. We show where our funds fit in, ranked by quintile.

You can find the overall fund ratings, as well as the individual pillar ratings (E, S and G), under the ESG Rating section of our individual fund webpages.

+ Do you plan on launching ESG-specific portfolios?

No. We believe ESG principles are holistic and shouldn’t be a separate category of investments. This is why we’ve implemented them across our line-up, rather than launch separate ESG-only products. We think the highest and best use of ESG data and insight is as a tool to be integrated into a broader investment process. This way, investors don’t have to choose between performance and doing the right thing.

+ Why do some Purpose funds not have ESG ratings?

We actively work to add ESG for funds where we are realistically able to. For some funds, ESG ratings are difficult to source or they may not exist for companies with limited operating histories. Some funds predominantly or exclusively use index products or non-corporate securities. In these cases, there isn’t enough data to support an aggregate score.

However, when it comes to companies with no ESG ratings, we still analyze them within an ESG framework and apply the resultant analysis to our investment decisions. With time, we’ll be able to publish scores on many of these funds as the data becomes available.

+ Can you invest in energy, cannabis or other businesses that some may deem controversial within an ESG framework?

Yes. We’re taking an integrated approach to ESG, not an exclusionary one. Popular industries to exclude from a sustainability or social perspective include fossil fuels, weapons, tobacco, gambling, adult entertainment, alcohol and cannabis. Our process does not intentionally exclude any industry or company, but rather tilts overall portfolio exposures in a more sustainable direction.

This means you may still see these companies in some portfolios. When all other things are equal, we will actively allocate less capital towards them. A company that scores high on a fundamental basis but poorly on ESG or may be flagged for controversy can still qualify for inclusion in a portfolio. A more marginal company will not.

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