Integrating financial and sustainability analysis into a portfolio can reduce investment risk, according to socially responsible mutual funds company Ethical Funds.

At a recent portfolio manager symposium held in Vancouver, Ethical Funds sought to demonstrate how external risks brought to light by sustainability analysis, combined with financial analysis, can provide a more complete picture of a company’s position.

“The sustainability analysis can give managers an edge because it provides a deeper assessment of true management excellence beyond the financial analysis that is standard in the investment industry,” said Joe Jugovic, vice-president of investments at QV Investors Inc., who attended the symposium.

Ethical Funds encourages investors to consider the environmental, social and governance issues that can impact companies, since they can play a role in the overall investment potential.

A company’s approach to carbon dioxide emissions, for instance, could play a role in the performance of its shares. The Conference Board of Canada finds that investors are increasingly expecting companies to acknowledge such environmental issues.

“Investors are encouraging companies to disclose how they are addressing the business risks and opportunities arising from climate change related regulations and the physical impacts on business operations,” the Conference Board said in its 2008 Carbon Disclosure Report, which it presented at the Ethical Funds symposium.

In its analysis of the 200 most valuable companies by market capitalization listed on the Toronto Stock Exchange, the Conference Board commended Royal Bank of Canada, CIBC and Bank of Nova Scotia as leaders in the low-carbon impact sector, for their carbon disclosure practices.

Sustainability analysis is also relevant to investments in Canada’s heavyweight energy sector, according to Ethical Funds. The company warns investors that the recent rapid development of the oil sands has created a complex set of adverse environmental and social impacts that threaten to reduce energy companies’ valuations and hamper the performance of investment portfolios.

“Institutional investors are taking note, expressing particular concern about the carbon intensity of unconventional oil,” Ethical Funds wrote in a recent paper on the topic.

IE