Canadian SRI funds closely monitoring Barrick

The Norwegian government’s decision to expel Barrick Gold from its state pension plan for environmental reasons has sparked renewed debate over whether Canadian SRI mutual funds should continue to invest in the controversial mining company.

Barrick is a top ten holding in four Canadian SRI funds: Ethical Balanced, Ethical Stock, Ethical Index and Acuity Social Values Canadian Equity.

Bob Walker, vice president, sustainability, at Ethical Funds notes that the Norwegian pension fund uses divestment as a tool to express dissatisfaction with a company’s performance, instead of engagement, which is Ethical’s preferred approach.

Walker notes that Ethical has been talking with Barrick since 2005 and has made progress in a number of areas. For instance, Barrick has established a human rights policy, joined the UN Global Compact on corporate responsibility, hired a chief medical officer to deal with HIV/AIDS and has extended the availability of antiretroviral drugs to employees and their families.

The company also established community engagement guidelines that Walker says could have improved Barrick’s performance in a number of controversial mining projects around the world. However: “In the last two years, that hasn’t happened, the controversies are continuing.”

Ethical sent two analysts to Nevada last year to tour Barrick’s mines and meet with the Western Shoshone community. Subsequently, Ethical recommended that Barrick consider conducting a human rights impact assessment of that project, an idea rejected by Barrick.

Ethical is now in the process of drafting a shareholder proposal for Barrick’s 2009 annual general meeting in an effort to get the company to improve its human rights and environmental performance, Walker says.

So what would it take for Ethical to divest in Barrick?

“We have fairly clear rules on that,” Walker says. “We make three concerted efforts at engaging a company on any given issue and if they fail to respond with sound arguments on those three occasions then we will divest.”

The rejection of [establishing a human rights impact assessment in Nevada] would represent the first strike, Walker says. But there’s still the shareholder proposal and an upcoming meeting with Barrick’s new CEO to consider. “We’ll see how things go from there. We are pretty patient around these issues and we believe that corporate change takes time.”

Over at Acuity, Social Values Funds manager Martin Grosskopf points out that for a Canadian equity fund benchmarked to the TSX, the gold sector is impossible to ignore.

Still, he concedes that Barrick, like most companies in that sector, does not come without controversy. “The reality is that all of the gold mining companies have significant issues and Barrick has had many of these issues for years, but it still ranks better than others within the space.”

“We’re not trying to avoid the issues entirely; we know we are going to own companies that have some contentious issues and Barrick is certainly one of them.”

Of course, both Walker and Grosskopf note that socially responsible investors can avoid Barrick by investing in other Canadian Ethical or Acuity products, such as Ethical’s Special Equity Fund or Acuity’s Clean Environment Equity Fund. “We don’t own gold in that fund,” Grosskopf notes. “I don’t think you can mine gold without having significant environmental impacts, that’s the nature of that sector.”

Canada’s two other SRI-focused mutual fund companies – Inhance Investment Management and Meritas Mutual Funds – do not hold Barrick.