Wednesday, September 30, 2009

The next generation of responsible investing

(the following is a cross-post from

The Carleton Centre for Community Innovation is convening an international conference this week on responsible investing through the UN Principles for Responsible Investing (UNPRI) initiative. The Principles for Responsible Investment, convened by United Nations Environment Program and the UN Global Compact, was established as a framework to help investors achieve better long-term investment returns and sustainable markets through better analysis of environmental, social and governance issues in investment process and the exercise of responsible ownership practices.

Following the initial conference of the PRI Academic Network held at Maastricht University in September 2008, this conference will bring 75 invited academics and practitioners, including representatives from the Canada Pension Plan Investment Board, Caisse de Depot, BC Investment Management Corporation, Toronto Dominion Bank, and Desjardins. Over the three days, twenty seven papers will be presented by a group of international academics, inlcuding ten papers to be presented by doctoral and masters students from around the world to encourage the next generation of academics on this topic. A special themed issue of the Journal of Business Ethics (JoBE) will take the best qualitative papers on Responsible Investing presented at the conference selected by the program committee and subject to the usual peer-reviewed process of the Journal.

Karim Harji from Social Finance will be blogging from the conference to capture some of the key themes and areas of discussion.

You can follow Karim's blogs on the Social Finance website.

United Nations announces SRI research awards

The United Nations Principles for Responsible Investment has issued a call for academic research papers on the general theme of the mainstreaming of responsible investment.

Suggested topics include:

-- shareholder engagement and its effectiveness among mainstream investors
-- the integration of ESG issues into mainstream investments
-- ESG-focused investments and ESG alternatives among mainstream investors
-- responsible investment, market failure and regulatory response

The Danish government is sponsoring six research awards, worth a total of $33,000 (three $7,000 awards for post doctorate or academic articles and three $4,000 awards for graduate level articles).

The winners will be invited to present their work at next year's PRI Academic Conference in Copenhagen. The second annual conference is being held at Ottawa's Carleton University this week.

The first day of the Ottawa conference will focus on papers on the theme of "the Next Generation of Responsible Investment," while the second day of the conference will allow for other papers on responsible investment to be presented on themes such as universal ownership, corporate engagement and shareholder advocacy.

Link to the PRI Academic Network.

Monday, September 28, 2009

Must Read: this week's Economist

The current issue of The Economist, September 26th to October 2nd, has a number of articles of interest to the socially responsible investment community. The most important of these is 'Briefing - Financial innovation and the poor' about the rise of social finance, which discusses some new inititatives and some old ones. The focus is on 'impact investing', which includes, but is not limited to, SRI.

In Science and Technology, we have 'Last gasp for the forest'. A new climate treaty could provide a highly effective way to reduce carbon emissions by paying people to not cut down forests.

Schumpeter addresses 'The pedagogy of the privileged', stating that business schools have done too little to reform themselves in the light of the credit crunch.

And less directly related to investing but nonetheless fascinating is the cover story on telecoms in emerging markets. "How did a device that just a few years ago was regarded as a yuppie plaything become, in the words of Jeffrey Sachs, a development guru at Columbia University's Earth Institute, 'the single most transformative tool for development'?"

You might have to buy the hard copy, as the Economist doesn't put everything online, but the information and thought provoking content are well worth it.

Tuesday, September 22, 2009

10 years of sustainability indexing

If you happen to be in New York City today, you could join SAM, Dow Jones and STOXX for the 10th anniversary celebration of the Dow Jones Sustainability Indexes, at a cocktail and dinner reception at the American Museum of Natural History.

But it’s not just about a party. ‘The principles of sustainability have gained traction as the result of spirited discussion and debate. But given volatile markets and rising CO2 levels, it’s never been more important to accelerate those conversations and spread those ideas to new places. We want to fuel dialogue on two important topics:

What has our industry accomplished in the 10 years since these indexes have been launched?

What are the biggest challenges the industry faces in 2010, and the decade to come?’

Both very interesting questions, and as the results of the dialogue become available, we’ll be filling you in. And if you have comments, please let us know and we can get our own dialogue started too.

Launched in September 1999, the DJSI series provided the first global sustainability benchmarks worldwide. Today, more than 8 billion dollars(US) of assets are in financial products linked to the Dow Jones Sustainability Indexes such as mutual funds, separate accounts, notes, futures and exchange traded funds. Canadian investors can readily access the DJSI through mutual funds offered by TD Asset Management. In addition to the proliferation of products, SAM says “as the number of investors using the DJSI increases, the indexes are continuously moving up the corporate agenda.”

Confirming SAM’s view, Rick Waugh, President and Chief Executive Officer, Scotiabank says, "Scotiabank is working diligently to continue to integrate environmental, social and governance principles into all our operations. We believe that paying close attention to sustainability issues provides us with a competitive edge." Scotiabank has been named to Dow Jones Sustainability World Index for the first time this year, joining a select group of 11 Canadian companies to make the cut.

Monday, September 21, 2009

Corporate green rankings: looking beyond the list mentality

As Newsweek magazine notes in its latest issue, being green isn't new. However, in-depth analysis of green issues in the mainstream media is. This week, Newsweek ran its first-every "green rankings" issue, rating 500 major U.S. corporations based on their environmental performance, policies and reputation.

The results make for an interesting read. Hewlett-Packard comes out on top based in its "strong programs to reduce greenhouse gas emissions," according to Newsweek. Dell is second, followed by Johnson & Johnson, Intel and IBM. State Street, at number six, is the only financial services company to crack the top ten, followed by Nike, Bristol-Myers Squibb, Applied Materials and Starbucks.

To its credit, Newsweek devoted an impressive amount of editorial effort and external resources to this project. For more than a year, Newsweek says it worked with leading environmental researchers, such as KLD and Trucost, firms whose valuable research rarely appears in mainstream publications.

But what's perhaps more interesting is Newsweek's admission that any "green ranking" system is bound to have its flaws, explained in one of several articles related to the list.

"Ranking compaines based on sustainability is a huge challenge," Newsweek says, noting the inevitable apples and oranges element to comparing environmental performance across industries. "Some are far dirtier than others: a typical financial services company exacts a smaller environmental toll than even the best-run mining or utility company."

Newsweek attempts to compensate for that by including three components in its final green score: environmental impact, green policies and reputation.

The article goes even further: "Economists view environmental damage as a classic "externality" - a cost that impacts society but isn't imposed on producers or consumers. But with scientific consensus that carbon emissions threaten our climate, there's growing political will to curb them, particularly with the global powers set to meet in Copenhagen in December."

Rankings like this will soon be forgotten in the quick turnaround of today's 24-hour news cycle. But, by placing considerable emphasis on this story, Newsweek is telling its readers that climate change is critical and should be taken more seriously by the world's corporations and politicians, a fact that environmental and SRI groups have been trumpeting for years. So, if nothing else, Newsweek's green rankings suggest that the mainstream media is starting to listen.

Read Newsweek's 2009 Green Rankings.

Thursday, September 17, 2009

Pushing Tim Hortons on Fair Trade

Canadian coffee drinkers love Tim Hortons. Many of us make multiple trips to the nearest "Timmy's" every day. But the coffee giant has so far resisted requests to offer Fair Trade certified coffee. A number of groups are working to change that.

According to the Shareholder Association for Research and Education (SHARE), the Fair Trade program offers an alternative to the conventional coffee trade, ensuring that producers in developing countries get a fair price for their products. "This is accomplished through a set of trading, social and environmental standards whose implementation by producers or buyers is certified by an independent body," SHARE says. The standards are established by Fairtrade Labelling Organizations International (FLO), a non-profit group based in Germany.

Although Fair Trade coffee is widely available in Canada, and has been for years, it's sold mostly in smaller, independent shops. Recently, SHARE and Batirente started a dialogue with Tim Hortons to request that the company start offering Fair Trade certified coffee. Ethical Funds has announced plans to engage Tim Hortons on the same issue this year.

Tim Hortons does have a Sustainable Coffee Program, a goodwill project that aims to provide financial assistance, technical training, education and social services to a number of coffee-producing communities in Guatemala, Colombia and Brazil. That's admirable and SHARE has asked for more information on the program.

But is it enough?

SHARE, working on behalf of Meritas Mutual Funds, says it hopes to convince Tim Hortons to adopt a more forward-looking approach to coffee sourcing. "The proposed steps recognize the significance of the Fair Trade coffee market growth and the opportunities that Fair Trade presents for Tim Hortons' coffee supply management processes," says SHARE.

Average annual sales of Fair Trade coffee grew nearly 33% in Canada between 2003 and 2008. Tim Hortons has a chance to share in that growth, while at the same time helping the estimated 25 million people around the world who depend on the coffee industry to make a living.

Something to think about next time you're waiting in that long line-up for a double-double.

Tuesday, September 15, 2009

The time has come for increased pension fund disclosure

Robert Oliphant, the Liberal MP for Don Valley West will introduce a Private Members Bill later this week requiring public and private pension plans to disclose considerations given to ESG factors throughout the investment process.

The socially responsible investment community in Canada has been advocating action on this issue for some time. Mr. Oliphant was supported at a press conference on Parliament Hill earlier today by Eugene Ellmen of the Social Investment Organization, Sarah Smith from Jantzi Sustainalytics and Ian Thomson of KAIROS.

Mr. Ellmen said “Our members believe that investment means more than just financial risk and return. We believe that the only way we can truly invest for the future is by incorporating environmental, social and governance issues into financial analysis and management.”

Similar legislation already exists in many parts of the world. According to the OECD Policy Framework for Investment, ‘An amendment to the UK Pensions Act in 2000, prompted a higher level of disclosure in pension funds: the act requires fund managers to tell members whether they consider the ethical, social or environmental impact of the companies they invest in. Managers still have the option to state that they do not take these impacts into account, but the fact that they are required to disclose their policies puts greater pressure on them to justify their stances. Other countries in Europe, including Austria, Belgium, France, Germany, Italy and Sweden, have all enacted similar legislation. In Australia, the Financial Services Reform Act includes an amendment that compels providers of investment products to disclose ‘the extent, if any, to which labour standards, environmental, social or ethical considerations are incorporated into their investment principles’. The Act applies to all investment, not just pension schemes.’

Mr. Ellmen continues, “It’s important to understand that the bill does not force pension funds to adopt ESG policies and practices. In fact, we expect that many pension funds will choose to do nothing under these new rules. However, the important principle is that pension mangers and trustees will need to disclose whether any of their investment decisions were based on ESG factors in the last year.”

As with many areas of SRI, transparency is the first step. Given the steep losses incurred by many pension funds in the recent market meltdown, Canadians are looking for more information. Mr. Oliphant said “This bill is about transparency. It will ensure that clear information about the way investment decisions are made is available to protect pension plan members. It also recognizes the significant role pension funds play in the Canadian economy.”

Good work, Mr. Oliphant!

Sunday, September 13, 2009

Jantzi Research announces merger

Jantzi Research, one of Canada's leaders in responsible investment research, has announced that it will join forces with Sustainalytics, a European ESG research provider to the financial sector.

The new company will operate as Sustainalytics globally and Janzti-Sustainalytics in North America.

"The merger combines two trailblazers in responsible investment research," the companies said in a joint statement released today. "The new company responds to an increasing appetite for international ESG research coverage underpinned by local expertise."

Michael Jantzi will be the CEO of Sustainalytics. "We've had a long and successful history of working together thanks to our similar client-focused cultures, shared commitment to quality and common view of sustainability," he said.

"This merger was the logical progression of our past partnership," Jantzi added. "Together, we offer an unmatched understanding of the market and can provide more extensive coverage of companies globally with deeper sector analysis."

Jantzi's Bob Mann will be Sustainalytics managing director for North America. Ronald Lubberts, the former head of Sustainalytics, wil retain the position of managing director, Europe.

"Sustainalytics will continue to deliver high quality, innovative research and client-oriented services to investors and clients, and will offer access to employees spread across two continents and five cities," Lubberts said. "Clients will also benefit from our expertise in responsible investment and sustainability services, including access to a broader variety of products such as carbon related analytical tools."

The new company will be based in Amsterdam and Toronto, with local offices across Europe.

Formed in 1992, Jantzi Research pioneered the "best of sector" screening process and launched the Jantzi Social Index in 2000, a socially-screened stock index based on the S&P/TSX 60. Sustainalytics was created in 2002 and changed its name from Dutch Sustainability Research last year.

This is the second merger in the sustainability research sector in 2009. Earlier this year, RiskMetrics acquired Innovest.

Friday, September 11, 2009

Dexia brings SRI expertise to Canada

Dexia Asset Management, which has one of the largest SRI teams in Europe, is coming to Canada. The firm, which has $120 billion in assets under management, this week announced plans to open a new office in Toronto.

"Based on our unique approach and strong track record, we are extremely confident in our ability to provide real value to institutional investors in Canada," said Christophe Vandewiele, head of Dexia Asset Management Canada, in a statement.

"We are meeting with institutional investors across the country and many of them are indicating a keen interest in further diversifying their portfolios and obtaining foreign equity management expertise," Vandewiele said. "These institutions are becoming more acutely aware of the importance of social and responsible investing and are searching for quality investment solutions in this area."

Dexia offers more than 20 SRI funds to institutional investors in Europe.

Vandewiele added that SRI is in its "early stages of adoption" in the Canadian market, but noted Dexia's 12-year track record "building and managing a broad range of SRI funds in Europe."

"Accordingly, we are able to offer Canadian institutional investors an unparalleled level of expertise and experience incorporating SRI investments into their portfolios," he said.

Thursday, September 10, 2009

Sunny Money for Some

As interest in SRI grows, product offerings need to keep pace. A welcome addition for socially responsible investors is the newly launched Solar Income Fund LP. Note, however, that the Fund is structured as a Limited Partnership with a $25,000 minimum investment for accredited investors only. It is offered in BC, Alberta, Saskatchewan, Manitoba, Ontario, Newfoundland, Nova Scotia and PEI.

The Solar Income Fund LP will construct, own and operate solar photovoltaic system installations in Germany. Why Germany? The simple answer – Feed-In Tariffs (FITs). The Renewable Energy Sources Act (EEG) in Germany guarantees each plant operator a fixed price for electricity generated from renewable resources. According to the WorldWatch Institute ‘The FIT is credited for the rapid deployment of wind and solar power among world renewable energy leaders Denmark, Germany, and Spain this past decade. Similar policies have since been adopted by many other countries, leading the FIT to become the most prevalent tool for promoting renewables.’

The EEG has been in force since 2000, and has driven renewable energy capacity and use in Germany. Paul Ghezzi, the Managing Director of the Solar Income Fund LP says ”The reason we selected Germany is that it is the most prudent, the most mature and the most stable market in terms of solar PV. Our hope is that in a year or two, Ontario will be there.” Ontario was one of the first jurisdictions in North America to adopt a FIT, in the Green Energy Act. It is anticipated that the FIT will encourage a similar green renaissance here.

However, the twist in the Solar Income Fund LP is that because the income is generated in Germany, investors will have to file German income taxes, and this makes the investment more complicated.

The three most important variables for the solar PV installations are how much will they cost, who is financing them and who will buy the energy generated. The Solar Income Fund LP has nailed down all three. Their contracts are fixed cost, the banks and the German government have come through with financing on excellent terms and the feed-in tariffs provide certainty at the end of the process. “When it comes to alternative energy, the real money is being made in private infrastructure,” continues Mr. Ghezzi. “This allows individual investors to participate.”

Well, the accredited ones anyway. The Solar Income Fund LP is targeting an 8% return, and hopefully some capital gain for investors at the end of the day. The exit strategy will be to sell the installations, or perhaps take them public a few years down the road when the LP winds up.

Wednesday, September 2, 2009

Are ethical investments good?

That's the provocative title of a study from researchers at the University of Western Australia, which looked at the returns associated with firms being included in, and dropped from, the FTSE KLD 400 Social Index, the world's longest-running SRI index.

"Our sample includes all firms added to, and deleted from, the [index] after its inception in May 1990 to the end of December 2007. Over this period, 370 firms were added to, and 370 firms deleted from the index."

Although the majority of deletions were due to corporate actions, such as mergers, the authors conclude that, using long-run event study methodology, that "there are positive and statistically significant long-run abnormal returns for firms being included in the [index]."

"We provide clear evidence that investing in companies which are recognized as being ethical can have long-term benefits for investors' wealth," the study states.

The authors admit that their finding "flies in the face of the consensus now emerging from academic studies in finance, which argue that funds' cost of implementing an ethical strategy are passed on to investors and thereby reduce investors' returns."

However, the study says that KLD's decision to include a firm in the index sends a clear signal that a firm is ethical and is also "unequivocally" good news for investors in those firms. "Indeed, some of the abnormal returns are large." More than 50% in some cases. "That is, $100 invested in these stocks would have earned, on average, $50.63 more that an investment in the benchmark."

The authors admit that long-run event studies are problematic and although they make efforts to avoid skewing the results, this report's conclusions will no doubt be controversial.

Download a copy of the study from this website.