Tuesday, October 27, 2009

Canada's best Cleantech companies

Last Friday the opening bell of the TSX was rung by Toby Heaps, editor of Corporate Knights, and representatives of the Cleantech 10™, a list of Canada’s best publicly and privately held companies in the Cleantech realm.

The Corporate Knights Cleantech 10™ was compiled by Corporate Knights Inc. and Cleantech Group LLC, the leading provider of Cleantech indices and information globally. The CK Cleantech 10™ was determined by first looking at technology-driven growth companies that have big impacts on resource efficiency and the environment—not simply those re-branding themselves as ‘green.’ A set of 18 screening criteria were applied to all TSX companies that Cleantech Group LLC use for their broad Cleantech Index. While the TSX has a large number of Cleantech stocks, they tend to be younger and smaller, so the screening criteria was applied with some leniency to allow for a rounded out top-ten list. A heavy emphasis was placed on purity (percentage of revenues or income from Cleantech business, and whether or not it’s really ‘clean’) and quality (strategy, management, financial strength, sector leadership). Other key criteria included growth, earnings, liquidity, capitalization, technology/intellectual property, and overall impact.

This year’s winner was Wesport Innovations, a company held in a number of SRI portfolios. "The growth of Canada's clean technology sector is the result of visionary companies who recognize that escalating energy and environmental concerns have created a tremendous opportunity for economic growth, job creation, and global leadership in a low carbon economy," said Karen Hamberg, Director, Sustainability & Environmental Performance for Westport Innovations Inc. "Westport strives to reduce its environmental impact in its operations as well as deliver significant economic, environmental and energy security benefits to customers with quality heavy-duty engine solutions."

For more information on the Cleantech 10™ and the Cleantech Next 10 Emerging Cleantech Leaders, click here.

The CK CleanTech 10™ 2009:

1. Westport Innovations (Vancouver, BC)
2. RuggedCom (Woodbridge, ON)
3. WaterFurnace Renewable Energy (Fort Wayne, IN)
4. Magma Energy Corp. (Vancouver, BC)
5. 5N Plus (Montreal, QC)
6. Canadian Hydro Developers (Calgary, AB) - in the process of being purchased by TransAlta
7. Carmanah Technologies Corp. (Victoria, BC)
8. NEO Material Technologies (Toronto, ON)
9. Stantec (Edmonton, AB)
10. Hemisphere GPS (Calgary, AB)

Thursday, October 22, 2009

"Green Investments Taking Root"

Socially Responsible Investing is becoming a growing trend and advisers are stirring clients in that direction
Naomi Carniol Special to the Star
Published On Thu Oct 22 2009

Sucheta Rajagopal buys organic vegetables. She takes the TTC and doesn't own a car. Her home is powered by green energy, thanks to Bullfrog Power.
Meet the new breed of investment advisers. Advisers who specialize in Socially Responsible Investing are more likely to drive a bicycle than a BMW. These advisers are focused on the bottom line, but they're also eco-minded and concerned about social justice.

Rajagopal, an investment adviser with Hampton Securities Ltd., decided to specialize in SRI because of her own concerns about social justice. Socially responsible investing, she explains, "is a way of integrating your values into the investing process." And that means looking at companies' environmental, social and governance practices.

When it comes to building portfolios for clients, Rajagopal is directed by clients' risk tolerance, financial goals and time horizons, but she's also guided by the social issues her clients are concerned about. Some clients are especially focused on the environment while others may be more interested in human rights. "I have a questionnaire I use with clients that says how important are these things to you? For every client, it's different."

SRI advisers use different screening tools when building an investment portfolio. Negative screening excludes companies involved in certain industries. For example, many of Rajagopal's clients do not want to invest in companies in the tobacco industry.

Positive screening focuses on finding companies that are making progress within sectors, such as mining, that may not be known for outstanding performance when it comes to environmental or social justice practices. SRI mutual fund companies, such as Meritas, use positive screening, accompanied by shareholder action, to encourage corporations to improve their environmental, social and governance behaviours. Shareholder action may involve meeting with company officials or filing shareholder resolutions to press a particular environmental or human rights issue.

Positive screening allows socially responsible investors not only to achieve greater diversification in their portfolios but also to influence company practices, says Kevin Towers, a financial planner, who specializes in SRI, at GP Wealth Management. "If you take an active position in a company, a shareholder position, you can encourage better behaviour whereas if you don't invest at all, you really don't have a voice in what that company does," says the planner, who once owned a recycling company.

Both Towers and Rajagopal say occasionally they've had to explain to potential clients that SRI doesn't mean lower returns. "We don't have to sacrifice returns at all," Towers says. "Adhering to SRI principles correlates highly with prudent management practices and results in higher profitability and better share performance in the long term."

Towers explains that companies with better labour practices have "happier, more productive employees in the long term and fewer possible liabilities down the road in the form of wrongful dismissal lawsuits." In addition, eco-minded companies that produce less waste tend to be more profitable because "it costs companies to deal with waste in whatever form it takes." The less waste generated, the less money spent on dealing with that waste. Rajagopal adds "there have been a lot of studies that show that companies that have good governance policies will outperform."

For example, if a company building a pipeline meets with the community who will be displaced by the pipeline and together builds a plan for relocating the community "you're going to see that infrastructure project happen probably more smoothly than a company that just says, `We don't care about these people. We're just coming through.' In the latter case, protests and work stoppages will likely occur. Those things all contribute to the bottom line."

When helping clients build portfolios, SRI advisers have more selections to choose from than ever before. In the last decade the number of SRI funds has greatly increased, Rajagopal and Towers say. "You have Canadian equity funds, balanced funds, small cap funds, foreign funds, and American equity funds," Rajagopal says.
As SRI funds grow in popularity, it's difficult to describe a typical socially responsible investor because the investors come from different professions and are different ages, from first-time employees to retirees. One belief many socially responsible investors and advisers share is that investments cannot only help investors achieve financial goals, they can make the world a better place.

As Rajagopal says, "I go out of my way with my consumer dollar to find organic produce and fair trade products and buy clothes from companies that are adhering to labour standards and not using child labour. I want my investment dollar to do the same thing."

Wednesday, October 21, 2009

MEDA launches new private equity fund

MEDA Investments Inc., a private investment company and pioneer in microfinance, has launched a new fund for high net worth investors.

The Sarona Frontier Markets Fund is a fund-of-funds that invests in microfinance as well as small- and medium-sized businesses in developing countries.

Serge LeVert-Chiasson, vice-president of MEDA Investments and Sarona Asset Management, says the new fund will use the services of “the world’s best and most promising small- and medium-sized enterprise fund managers who have a clear double and triple bottom line focus and will provide a risk/return profile that is attractive to commercial investors.”

MEDA (Mennonite Economic Development Associates) is a not-for-profit company dedicated to helping the lives of families who are living in poverty in the developing world through investment, primarily microfinance. MEDA is currently active in 44 countries and makes investments based on its network of agents and partners around the world, LeVert-Chiasson explains. “Those partners provide us with really good insight into foreign markets and we’ve discovered that microfinance has really come of age. You’re seeing a lot more interest from Wall Street and some of the European financial centres. They see both the opportunity to make a successful return on their investments combined with a positive social impact.”

“Our target market is high net worth individuals who are interested in being part of the solution; they are seeking commercial returns but also high social and environmental impacts in their investments in the developing world,” LeVert-Chiasson adds.

MEDA’s history dates back to 1953 when a group of Mennonite businessmen invested in a dairy farm in Paraguay, an early investment in a socially-motivated small business.

“We’ve been investing in these markets for decades and we’ve discovered that investing in developing markets is much less risky than people are led to believe,” he adds. “You have to make intelligent bets on people and markets and culture, which many Canadian investors don’t have the capacity to do because you have to have an understanding of the local culture.”

The closed-end fund is available only to accredited investors in both Canada and the United States and has its first closing date on December 31, 2009. LeVert-Chiasson says MEDA would like to offer the fund to smaller investors; however legislation in the U.S. and Canada prohibits public fund offerings with illiquid assets.

Investors interested in supporting MEDA’s work can do so through its program of promissory notes, LeVert-Chiasson adds. “The downside is that interest rates are lower but it does allow investors who may not fit the definition of accredited investors to support our activities.”

Monday, October 19, 2009

PPNs: Socially responsible investment potential?

(the following was originally published on social finance.ca)

Principal Protected Notes are a possible way to broaden investor participation in socially responsible investment, writes Shyam Shankar in a recent posting on Social Finance.ca. They do not have the same rewards as riskier investments, but will allow investors across the board to invest ethically/responsibly without the fear of large losses to their capital.

PPNs have gained favour in boomer investment communities precisely for this reason - they allow near-retirement investors to participate in equity markets while minimizing the risk of a large loss to their nest-egg before retirement.

The most obvious limitation of this investment product is that it presently relates to publicly traded companies. In their current form, they are not designed to finance new social enterprises. This is not to say that the same logic cannot be extended to smaller companies – tailoring the PPN concept for smaller scale social enterprises will just require additional thought and innovation.

All investments involve tradeoffs between risk and return. Here, the fact that a PPN will protect against loses means that the investor pays a price in terms of potential upside. A direct equity or option based investment could mean higher returns than a PPN.

Finally, this is a relatively new investment product in Canada, and therefore does not receive the same level of regulatory scrutiny as say, a mutual fund. That means it is up to investors to be that much more diligent, do their homework and seek out advice to make sure PPNs work for them.

The PPN is already an established asset class in the traditional investment arena. Targeting it toward environmental, ethical or other progressive ends will permit the average investor to participate in SRI with limited downside and small amounts of capital.

It will be RRSP season before we know it – wouldn’t it be great to see some new socially responsibly investment options? Perhaps a David Suzuki endorsed portfolio of environmentally sustainable businesses? Maybe a portfolio of firms vetted for fair trade practices? The possibilities are endless in terms of how to use the PPN structure.

Shyam Shankar is a blogger at Social Finance.ca.

Thursday, October 15, 2009

Canada: Moving forward with responsible investment

Although Canadians can be proud of the many individuals and organizations that are leaders in the field of responsible investment, it would be harder to assert that Canadian institutional investors, as a class, are also leading their world counterparts. There are, however, encouraging signs that this is about to change.

One reliable indicator of active participation in responsible investment is the level of support for the UN Principles for Responsible Investment (UN PRI). The UN PRI is an international initiative launched with UN support – and assistance from Mercer – in 2004 to promote the integration of environmental, social, and corporate governance (ESG) factors into the investment management process. Today, the UN PRI can boast of over 550 signatories – asset owners, investment managers, and service providers – with over USD$18 Trillion in total assets.

Canada, which boasts many of the leading organizations and advisors active in the field of responsible investment (RI), has seven asset owners and 11 investment managers listed as signatories to the UN PRI. Australia, by contrast, with a smaller stock market and population and similar level of aggregate retirement savings, has 28asset owners and 43 investment manager signatories.

Part of this difference may be due to strong regulatory support “down-under” which arguably reflects and helps reinforce a broader interest in RI strategies. For example, the Australian Government has recently provided funding for the creation of the world’s first academic institution focused on encouraging the mainstream adoption of RI tools and strategies. More importantly, and in line with similar provisions in the United Kingdom and other European nations, Australia requires pension plans and investment managers to disclose if and how they assess, monitor, and mitigate ESG risks.

The call for ESG disclosure has been one near and dear to the RI community for many years. Here in Canada, there has been much discussion but little progress to date. Only the province of Manitoba explicitly allows trustees to consider so-called “non-financial” criteria in the investment decision-making process. Other Canadian jurisdictions are silent on the matter. The pressure may be mounting, however.

This year, for example, the Ontario Legislature unanimously approved a private member’s motion calling on securities regulators to study and make recommendations for meaningful disclosure of ESG-related risks. Shortly thereafter, the Ontario Securities Commission announced a review of corporate disclosure requirements.

This month, a private member’s motion was introduced in the House of Commons calling on public and private pension plans to disclose how they track and manage ESG-related risks. These actions mirror similar recommendations for pension plans in 2007, by the National Roundtable on the Environment and the Economy, and in 2008, by Ontario’s Expert Commission on the Future of Defined Benefit Pension Plans.

We may be reaching a tipping point in Canada as electoral speculation dovetails with widespread public concern about financial stability and retirement security. Canada’s largest pension plans are certainly not waiting for a regulatory push. Many of our globally-recognized funds are already considered global leaders in responsible investment and will be discussing the state of research and best practices with their counterparts this fall as the UN PRI holds an academic conference in Ottawa and a board meeting in Montréal.

The broader pension plan community, however, may require greater clarity from regulators to encourage widespread adoption of RI. If disclosure requirements are strengthened next year, 2010 may well be the year that RI practices truly enter the Canadian mainstream.

Jordan Berger is a principal at Mercer Investment Management in Toronto. This article was reprinted with Mercer's permission.

Tuesday, October 13, 2009

Consolidation continues in ESG research sector

U.S.-based RiskMetrics Group is set to make its second major acquisition of the year by purchasing Boston-based KLD Research & Analytics, according to industry insiders.

Neither company is talking, but U.K. website Responsible Investor says the deal is in its final stages. Global Proxy Watch, a corporate governance newsletter, predicts the agreement will be announced later this month.

KLD is one of the world’s oldest and respected ESG research firms, and is the creator of the first socially-screened index, the Domini 400 Social Index (named after co-founder and well-known SRI author Amy Domini), now known as the FTSE KLD Social Index.

Earlier this year, RiskMetrics acquired SRI research group Innovest. With the purchase of KLD, RiskMetrics would solidify its position as the world’s largest ESG research group.

It’s been a big year for buyouts in the SRI research world. In August, Jantzi Research, one of Canada's leaders in responsible investment research, announced that it was joining forces with Sustainalytics, a European ESG research provider to the financial sector. The new company is operating as Sustainalytics globally and Janzti-Sustainalytics in North America.

U.K. fund managers facing climate change barriers

A new study conducted by FairPensions suggests most U.K. asset managers regard climate change as a critical investment issue. However, those same managers say they are prevented from taking action on such issues because of low carbon prices and a lack of demand from clients.

FairPensions surveyed 39 of the U.K.’s largest investment managers, representing about $12 billion in assets under management, in a study called "Preparing for the storm? - UK fund managers and the risks and opportunities of climate change," released earlier this month.

“An overwhelming majority (89%) of participating fund managers recognize that climate change is an “important” or “very important” investment issue, and a large majority (66%) state that it has become more important in the last two years,” the study says.

“However, 63% of fund managers surveyed said that the low current carbon price was the most significant barrier to the incorporation of climate change risks and opportunities into investment analysis and decision making.” This creates, in the words of one manager surveyed, an “imbalance between the relatively short-term horizons of mainstream investment analysis and the relatively long-term nature of the material business impacts of climate change”

The findings also suggest that fund managers feel little pressure from clients to temper short-term thinking: 56% of respondents cited “lack of demand from clients” as a barrier to managing climate change risks and opportunities.

Despite the near-universal recognition of the importance of climate change, there are significant differences in the extent to which fund managers are taking action to anticipate climate change, the study notes. For example, only 29% of those surveyed make use of climate change data in their analysis of “all companies where data is available.”

Fund managers surveyed fell into two main camps, those who take the view that “all sectors of the economy will be affected” versus those who think that “carbon emissions are material and relevant for some sectors but not for others: 39% request climate change data from companies in “all sectors” and a similar proportion (36%) request such data from companies in “a minority of sectors.”

Perhaps surprisingly, there is a strong consensus amongst participating U.K. fund managers on the need for greater regulation: 86% stated that they would welcome requirements on companies to report greenhouse gas emissions and 78% would welcome stock exchange listing rules requiring companies to disclose climate related risks.

In addition to support for reporting requirements, 72% would also welcome regulatory requirements on companies to reduce emissions.

Fund managers need clear signals from asset owners, the study concludes. Lack of client demand is identified in this report as one of the key barriers to fund managers taking action on climate change. “In the absence of any immediate pricing imperative to take climate change into account, clients should send clear instructions that the longer-term risks and opportunities associated with climate change should be given appropriate weight.”

Thursday, October 1, 2009

Industrial Alliance enters SRI space through acquisition of Inhance

IA Clarington, a subsidiary of Industrial Alliance, has announced plans to purchase the SRI mutual fund business of Inhance Investment Management from its current owner, Vancity, one of Canada’s largest credit unions.

The purchase price was not released, but the proposed deal also involves a long-term distribution agreement between Industrial Alliance and Vancity, under which IA Clarington funds will be available through Vancity’s 60 retail branches in British Columbia.

Founded in 2001, Vancouver-based Inhance offers six SRI funds: a balanced fund, a Canadian equity fund, a global leaders fund, a monthly income fund, a bond fund and a money market fund. Inhance has approximately $75 million in assets under management.

According to a statement released on Thursday, Industrial Alliance will create six new IA Clarington SRI funds through a merger with the Inhance fund family.

Inhance vice president Dermot Foley, fund manager Stephen MacInnes and other key members of the company’s investment team will remain with Vancity after the transaction closes, acting as sub-advisors for the new IA Clarington SRI funds.

"The addition of Inhance's SRI mutual fund business represents a natural evolution of IA's commitment to corporate social responsibility and a continuation of IA's "best-of-breed" investment philosophy through the addition of a top-rated Canadian SRI investment advisor," said Normand Pépin, executive vice-president of Industrial Alliance in a statement. "It also provides access to a new distribution network in western Canada made up of experienced financial advisors."

Vancity president Tamara Vrooman calls the deal an excellent opportunity for both Vancity and Inhance. “Vancity will retain Inhance’s renowned team of advisors who pioneered socially responsible investing and, by partnering with IA Clarington, will see socially responsible investments brought to a much wider marketplace,” she said.

The transaction is expected to close in December, pending unitholder and regulatory approval.