Social investing explodes

  • April 17, 2007
TORONTO - More than half a trillion dollars, almost a fifth of Canada’s investment capital, is now invested with one eye on the ethical bottom line.
An explosion of interest in Socially Responsible Investment has bumped assets under management according to SRI principles from 3.6 per cent of the mutual fund and institutional investment market in 2004 to 19.6 per cent in 2006, according to a new study by the Social Investment Organization. In total, SRI assets in Canada have ballooned 669.4 per cent in two years to $503.6 billion.

The difference has been application of some SRI principles to investment management at the Caisse de Dépot, Canada’s largest pension fund, the Canada Pension Plan Investment Board, the Ontario Municipal Employees Retirement System and other large institutions. These big players apply what the study calls “broad SRI principles” and are not screening out particular industries such as tobacco or arms dealers, nor selecting best-in-sector companies based on environmental or human rights performance. However, they have begun voting at corporate annual general meetings on environmental, social and governance issues, said SIO executive director Eugene Ellmen.

“They vote their shares in the companies they hold on shareholder resolutions, on issues like climate change and human rights, international development, and that’s good,” Ellmen told The Catholic Register.

Ellmen believes the next step for institutional investment managers will be to start overweighting their holdings in companies that have taken positive action on climate change and underweighting the climate change dinosaurs.

“You’ve got choices in the oil and gas sector,” Ellmen said. “Between companies like Imperial Oil and Suncor and PetroCan - Imperial, which is basically business-as-usual on the climate change issue and then companies like Suncor and PetroCan, which are investing in renewables and doing what they can to reduce their greenhouse gas emissions. From our point of view, it makes more sense to overweight the Suncors and the Petrocans and underweight the Imperials.”

The core, traditional SRI investment market, which applies screens and picks best-of-sector stocks based on environmental, social and governance performance, is a more modest $57.4 billion — a 2.2-per-cent share of assets under management.

“We have to understand that SRI is still in its infancy,” Ellmen said. “The very first SRI mutual fund (in Canada) was Ethical Growth Fund. So it’s really only just been here for 20 years. If you compare that to conventional finance, conventional finance and investment is centuries old.”

But it isn’t just the investment markets that are inching toward an ethical bottom line. Banks are also beginning to loan money for major new ventures based on how they will affect the environment and local communities. The Canadian Imperial Bank of Commerce, Scotiabank, the Royal Bank of Canada and Manulife Financial have all signed the Equator Principles, an international standard that requires banks to assess environmental and social risks to dams, roads, mines, logging operations and other major investments banks might finance.

Union-based Citizens Bank of Canada asks commercial borrowers to complete an ethical policy assessment form used to evaluate borrowers on their written and verifiable ethical policies.

“They speak very much from the language of values,” observed Ellmen. “I think it would be a stretch for the big chartered banks to do it in quite the same way, but that’s not to stop them applying a social and environmental analysis to their corporate and commercial lending. I think that’s probably on its way.”

Looking forward, Ellmen also expects  to see an increase in Muslim banking in Canada. Muslim banking tries to eliminate the usury implicit in charging interest.

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