These are fascinating times for those of us working in the field of Socially Responsible Investment (SRI). The themes surrounding SRI have been evolving for almost 50 years now – from Ralph Nader’s fight on behalf of auto safety standards in the 60’s, to faith-based campaigns to divest from South African businesses in the 70’s, to the creation of investment management teams in the 80’s and 90’s that screened and engaged companies on behalf of the common values of shareholders.
Yet until very recently SRI was confined to the fringes of investment management, particularly here in Canada. Now there are shades and nuances that go beyond the original intent of influencing corporate behaviour, ranging from traditional ‘ethical’ funds to ‘green’ funds, ‘sustainable’ funds, and ‘clean energy’ funds. And just where do ‘water infrastructure’ and ‘social index’ funds fit in? Many fund companies are eager to wrap their offerings into what looks like a ‘socially responsible’ package, but investors do need to dig a little deeper to determine whether this is truly the case.
To make some sense of what is becoming an increasingly complex array of choices, I thought it would be useful to sort what is currently available into some broad categories, the lines between which can be a bit fuzzy. And while I’ll be the first to acknowledge that the whole subject of what constitutes ethical behaviour is open to debate, those of us who wish to apply social or environmental values to our investments have more opportunity to do so than ever before.
ACTIVE ETHICAL FUNDS not only screen their portfolios to exclude those companies that do not conform to broadly held shareholder values, they actively engage with those they do invest in to advance corporate behaviour in response to issues such as HIV/AIDS, global climate change, or human rights. In my opinion, this is where the rubber hits the road for investors who want to support progressive corporate governance. The Ethical Fund Company, Meritas Funds, and Inhance Investment Management would all fit into this category.
PASSIVE ETHICAL FUNDS will screen out companies involved in tobacco, or weapons, or nuclear energy, but do little in the way of active shareholder engagement with company management. This is SRI practiced in its simplest form, and can found in the RBC Jantzi funds, PH&N Community Values funds, iShares Jantzi Social Index Fund, Investors Summa and the Acuity Social Values funds.
SUSTAINABLE FUNDS have a mandate to invest in companies that are responding to global sustainability issues. The waters get murky here when you consider that companies like GE may be included in a ‘sustainable’ fund (huge wind turbine business) but not an ‘ethical’ one (equally huge supplier of jet turbines to the US military). TD Asset Management and Mackenzie Investments are two fund managers that focus on sustainability.
GREEN FUNDS are those that focus on technologies that can be applied to clean energy or a clean environment. They could be considered strategic ‘theme’ investments, but it may not fall within their mandates to engage corporate management on issues such as monitoring supply chains for fair labour standards. In this category one can look to the Acuity Clean Environment Funds, Criterion’s Global Clean Energy Fund, and HSBC and Scotia both offer funds focused on companies that work to remedy climate change. There are also a variety of ‘green’ exchange traded funds available from PowerShares trading in US$ on the American Stock Exchange.
‘100 MILE’ FUNDS are those that are devoted to nurturing BC-based businesses. These funds often provide what is termed ‘venture capital’ to help commercialize promising technologies developed in BC universities and laboratories. Examples are the BC Working Opportunity Fund, the BC Discovery Fund and Pender Capital. Significant tax credits are also available with the purchase of these offerings.
As you can see, there are plenty of choices when it comes to building a socially responsible investment portfolio. In fact one can put together a well-diversified portfolio by adding an appropriate mix of cash, GICs, and/or bonds to the options outlined above. The SRI investment landscape continues to evolve. Ask your Investment Advisor how some of these options might fit into your financial planning.