When your firm’s pension plan holdings are invested, do you think about the companies you financially support in the process? Chances are, your employees are beginning to take notice. And, if they’re not already demanding that you put their money in ethically friendly funds, they probably will in the near future.
Socially conscious investing is a growing phenomenon in Canada, and the more you know about it, the better.
Ethical and environmentally concerned investing in Canada began in earnest in the mutual-fund industry when Ethical Mutual Funds first offered its Ethical Growth Fund in 1986. Investors Group followed a few months later with Investors Summa Fund.
The original few ethical mutual funds started out screening investment candidates against the obvious, so-called “sin industries” — tobacco, weaponry and nuclear power. Early on, Ethical Funds of Vancouver laid out its “ethical principles.” Along with a rejection of tobacco and weapons production, these principles required ethical funds to invest only in companies that encourage progressive industrial and employee relations, operate in countries with non-discriminatory employment practices and that are committed to implementing environmentally conscious practices.
Investors Summa further rejects investment in companies involved in alcohol, pornography and gambling and operating in countries controlled by repressive regimes. But the criteria have broadened to include a range of issues such as human rights and the use of child or other forced labour.
In 1991, Acuity Investment Management Inc. weighed in with its Clean Environment Funds. Making clear these funds are not ethical funds like the others, Ian Ihnatowycz, portfolio manager and president of Clean Environment Mutual Funds, describes his investment criteria as requiring investee companies to carry on their businesses using environmentally sustainable methods. He especially looks for companies that not only use, but develop products, services and technologies for environmentally sustainable economic activity.
Now, Canadians have 22 such funds from which to choose, holding assets totalling more than $5 billion. These include offerings from Fiducie Desjardins, the Quebec-based credit-union organization, YMG Capital Management Inc. and Mackenzie Financial, both of Toronto.
The managers of these and a few other socially responsible mutual funds also offer their special knowledge and expertise to the pension fund industry.
And a growing number of institutional money managers offer similar services.
As well, these fund companies offer social-investment products suited to the benefits industry. Acuity, for example, offers a series of pooled funds for institutional investors. YMG manages a pooled fund for institutional clients. Ethical Funds offers fully administered group RRSPs.
In total, Canadians hold more than two per cent of their savings in ethically screened funds. And statistics show that many Canadians invest directly in the stock market according to their own concerns about ethical and environmental issues.
Since the advent of these early practitioners in socially conscious investing, there have been a couple of significant developments.
The national, non-profit Social Investment Organization opened its doors in Toronto in 1989, dedicated to promoting “the development of socially responsible investment.”
The organization holds educational seminars, gathers information and publishes industry reports. And it keeps a Social Investment Directory of mutual funds, financial professionals and institutions involved in the socially aware investment field in Canada.
Then, in 1992, Michael Jantzi, already active in the field, formed Michael Jantzi Research Associates Inc. The Jantzi organization produces social research and analysis, including environmental profiles on more than 400 publicly traded Canadian companies.
Last February, Jantzi created its Jantzi Social Index, comprising 60 companies from the TSE 300 Index that most closely adhere to a set of criteria developed by the company to exemplify socially conscious practices.
While Jantzi provides a benchmark for ethical investment pools, how does the process stack up financially? After all, even Ethical Funds, Canada’s first institutional practitioner, states clearly in its literature that “maximizing profits is the goal of any solid investment plan.”
Many investment professionals contend that ethical and environmental screens limit a portfolio manager’s universe for non-financial reasons. And that can only lead to lower investment returns. Practitioners counter with two arguments.
First and most obvious, as suggested by Ethical Funds, “The bottom line doesn’t just end (at maximizing profits).” Even so, with due research, the company claims that “time and time again, we’ve found that progressive, ethically-managed companies are more profitable than their less-conscientious counterparts.” Social responsibility, claim its proponents, implies progressive management.
If that’s true, perhaps ethical management practices should be one of the financial analyst’s criteria for picking successful investments.
The track records
Unfortunately, meaningful research is lacking.
What then, do the track records of ethical mutual funds show? Ethical Growth Fund, for example, has a 10-year compound annual average return of just 9.1 per cent, ranking 50th among 67 Canadian stock funds tracked by Fundata of Toronto. Nothing to crow about.
Investors Summa Fund’s 10-year record — 14.9 per cent — ranks a more respectable ninth in the same category. Ethical North American Equity Fund boasts a 10-year record of 19.8 per cent, ranking fourth among 30 U.S. stock funds tracked by Fundata. Perhaps quality of portfolio management plays a role.
Clean Environment Equity Fund, in its eight years, has returned an impressive compound annual 15.9 per cent to rank 12th among 72 Canadian stock funds. And its sister Clean Environment International Fund’s six-year 14.6 per cent ranks 19th among 47 Global Funds. (All data courtesy of Fundata.)
At first blush, these numbers suggest some money-making bias to socially conscious investing. But shorter-term statistics confuse the issue.
The last five years, for example, have seen such environmentally unfriendly industries as resource extraction perform badly and fall out of widespread investor favour. It is unlikely that that is a market-wide endorsement of environmental concern.
But the phenomenon has helped environmentally friendly funds enjoy life in the investment limelight. Summa Fund, for example, boasts a five-year record of 24.2 per cent, ranking eighth among 94 Canadian stock funds.
Those strong years, however, have a significant impact on the fund’s longer-term record. In the previous five years to March 31, 1995, Investors Summa Fund’s five-year record of 6.2 per cent ranked just 84th among 137 funds in the Canadian stock-fund category. And while Ethical Growth Fund now boasts a five-year record of 11.6 per cent, ranking 72nd among 94 funds in the category, its previous five-year record of 6.7 ranks 74th among 137 Canadian stock funds.
If the financial statistics leave you more than a little confused, perhaps you should consider other motivation for socially conscious investing.
Proponents of the style, including Eugene Ellmen, executive director of the Social Investment Organization, acknowledges that possibly the most important motivator is, quite simply, personal values. Insistence on ethical investing, even in a portion of a pension plan, will probably rise from the employees themselves.
Then again, a company’s management and executives may play a part. Suncor, for example, through its chief executive officer Rick George, has fully committed itself to a sustainable ethic — no small undertaking for a company involved in such projects as development of the northern oil sands.
The Suncor employees’ pension plan leans heavily towards socially responsible and environmentally sustainable investing.
Aside from assuaging the consciences of investors, can direction of capital towards socially conscious companies make a difference? Possibly.
Institutional investors have been discovering more and more these past few years that the sheer size of their investments gains them an audience at shareholder meetings. Indeed, a group of concerned shareholders recently moved to discontinue the purchase of old-growth lumber at a Home Depot shareholders’ meeting. While the motion was defeated, executives realized its value and have since moved toward its implementation.
Firms such as Nike, Talisman Energy Inc. and The GAP are drawing fire from investors for their unfriendly corporate practices. Shareholder advocacy and activism are a growing phenomenon in support of many concerns. And committed ethical investors, especially those armed with the voting power of institutional-sized shareholdings, are increasingly being heard from in the meeting halls of corporate Canada.
A soother of conscience or a real tool for identifying shareholder value?
The evidence is far from conclusive. But the social-investment movement has become entrenched in Canada as more and more investors, individual and collective, express their conviction that, in the words of Ethical Funds, “you should feel good about your finances, in more ways than one.”
Peter Brewster is the editor of Canadian Mutual Funds Advisor. He can be reached at (416) 869-1177 ext. 250. For information about the Social Directory of Mutual Funds, call (416) 360-6047 or www.webnet/~sio. For information on the Jantzi Social Index, contact (416) 361-0403 or www. mrja.jsi.com.
Socially conscious investing is a growing phenomenon in Canada, and the more you know about it, the better.
Ethical and environmentally concerned investing in Canada began in earnest in the mutual-fund industry when Ethical Mutual Funds first offered its Ethical Growth Fund in 1986. Investors Group followed a few months later with Investors Summa Fund.
The original few ethical mutual funds started out screening investment candidates against the obvious, so-called “sin industries” — tobacco, weaponry and nuclear power. Early on, Ethical Funds of Vancouver laid out its “ethical principles.” Along with a rejection of tobacco and weapons production, these principles required ethical funds to invest only in companies that encourage progressive industrial and employee relations, operate in countries with non-discriminatory employment practices and that are committed to implementing environmentally conscious practices.
Investors Summa further rejects investment in companies involved in alcohol, pornography and gambling and operating in countries controlled by repressive regimes. But the criteria have broadened to include a range of issues such as human rights and the use of child or other forced labour.
In 1991, Acuity Investment Management Inc. weighed in with its Clean Environment Funds. Making clear these funds are not ethical funds like the others, Ian Ihnatowycz, portfolio manager and president of Clean Environment Mutual Funds, describes his investment criteria as requiring investee companies to carry on their businesses using environmentally sustainable methods. He especially looks for companies that not only use, but develop products, services and technologies for environmentally sustainable economic activity.
Now, Canadians have 22 such funds from which to choose, holding assets totalling more than $5 billion. These include offerings from Fiducie Desjardins, the Quebec-based credit-union organization, YMG Capital Management Inc. and Mackenzie Financial, both of Toronto.
The managers of these and a few other socially responsible mutual funds also offer their special knowledge and expertise to the pension fund industry.
And a growing number of institutional money managers offer similar services.
As well, these fund companies offer social-investment products suited to the benefits industry. Acuity, for example, offers a series of pooled funds for institutional investors. YMG manages a pooled fund for institutional clients. Ethical Funds offers fully administered group RRSPs.
In total, Canadians hold more than two per cent of their savings in ethically screened funds. And statistics show that many Canadians invest directly in the stock market according to their own concerns about ethical and environmental issues.
Since the advent of these early practitioners in socially conscious investing, there have been a couple of significant developments.
The national, non-profit Social Investment Organization opened its doors in Toronto in 1989, dedicated to promoting “the development of socially responsible investment.”
The organization holds educational seminars, gathers information and publishes industry reports. And it keeps a Social Investment Directory of mutual funds, financial professionals and institutions involved in the socially aware investment field in Canada.
Then, in 1992, Michael Jantzi, already active in the field, formed Michael Jantzi Research Associates Inc. The Jantzi organization produces social research and analysis, including environmental profiles on more than 400 publicly traded Canadian companies.
Last February, Jantzi created its Jantzi Social Index, comprising 60 companies from the TSE 300 Index that most closely adhere to a set of criteria developed by the company to exemplify socially conscious practices.
While Jantzi provides a benchmark for ethical investment pools, how does the process stack up financially? After all, even Ethical Funds, Canada’s first institutional practitioner, states clearly in its literature that “maximizing profits is the goal of any solid investment plan.”
Many investment professionals contend that ethical and environmental screens limit a portfolio manager’s universe for non-financial reasons. And that can only lead to lower investment returns. Practitioners counter with two arguments.
First and most obvious, as suggested by Ethical Funds, “The bottom line doesn’t just end (at maximizing profits).” Even so, with due research, the company claims that “time and time again, we’ve found that progressive, ethically-managed companies are more profitable than their less-conscientious counterparts.” Social responsibility, claim its proponents, implies progressive management.
If that’s true, perhaps ethical management practices should be one of the financial analyst’s criteria for picking successful investments.
The track records
Unfortunately, meaningful research is lacking.
What then, do the track records of ethical mutual funds show? Ethical Growth Fund, for example, has a 10-year compound annual average return of just 9.1 per cent, ranking 50th among 67 Canadian stock funds tracked by Fundata of Toronto. Nothing to crow about.
Investors Summa Fund’s 10-year record — 14.9 per cent — ranks a more respectable ninth in the same category. Ethical North American Equity Fund boasts a 10-year record of 19.8 per cent, ranking fourth among 30 U.S. stock funds tracked by Fundata. Perhaps quality of portfolio management plays a role.
Clean Environment Equity Fund, in its eight years, has returned an impressive compound annual 15.9 per cent to rank 12th among 72 Canadian stock funds. And its sister Clean Environment International Fund’s six-year 14.6 per cent ranks 19th among 47 Global Funds. (All data courtesy of Fundata.)
At first blush, these numbers suggest some money-making bias to socially conscious investing. But shorter-term statistics confuse the issue.
The last five years, for example, have seen such environmentally unfriendly industries as resource extraction perform badly and fall out of widespread investor favour. It is unlikely that that is a market-wide endorsement of environmental concern.
But the phenomenon has helped environmentally friendly funds enjoy life in the investment limelight. Summa Fund, for example, boasts a five-year record of 24.2 per cent, ranking eighth among 94 Canadian stock funds.
Those strong years, however, have a significant impact on the fund’s longer-term record. In the previous five years to March 31, 1995, Investors Summa Fund’s five-year record of 6.2 per cent ranked just 84th among 137 funds in the Canadian stock-fund category. And while Ethical Growth Fund now boasts a five-year record of 11.6 per cent, ranking 72nd among 94 funds in the category, its previous five-year record of 6.7 ranks 74th among 137 Canadian stock funds.
If the financial statistics leave you more than a little confused, perhaps you should consider other motivation for socially conscious investing.
Proponents of the style, including Eugene Ellmen, executive director of the Social Investment Organization, acknowledges that possibly the most important motivator is, quite simply, personal values. Insistence on ethical investing, even in a portion of a pension plan, will probably rise from the employees themselves.
Then again, a company’s management and executives may play a part. Suncor, for example, through its chief executive officer Rick George, has fully committed itself to a sustainable ethic — no small undertaking for a company involved in such projects as development of the northern oil sands.
The Suncor employees’ pension plan leans heavily towards socially responsible and environmentally sustainable investing.
Aside from assuaging the consciences of investors, can direction of capital towards socially conscious companies make a difference? Possibly.
Institutional investors have been discovering more and more these past few years that the sheer size of their investments gains them an audience at shareholder meetings. Indeed, a group of concerned shareholders recently moved to discontinue the purchase of old-growth lumber at a Home Depot shareholders’ meeting. While the motion was defeated, executives realized its value and have since moved toward its implementation.
Firms such as Nike, Talisman Energy Inc. and The GAP are drawing fire from investors for their unfriendly corporate practices. Shareholder advocacy and activism are a growing phenomenon in support of many concerns. And committed ethical investors, especially those armed with the voting power of institutional-sized shareholdings, are increasingly being heard from in the meeting halls of corporate Canada.
A soother of conscience or a real tool for identifying shareholder value?
The evidence is far from conclusive. But the social-investment movement has become entrenched in Canada as more and more investors, individual and collective, express their conviction that, in the words of Ethical Funds, “you should feel good about your finances, in more ways than one.”
Peter Brewster is the editor of Canadian Mutual Funds Advisor. He can be reached at (416) 869-1177 ext. 250. For information about the Social Directory of Mutual Funds, call (416) 360-6047 or www.webnet/~sio. For information on the Jantzi Social Index, contact (416) 361-0403 or www. mrja.jsi.com.
