Wednesday, December 22, 2010

Teachers’ pension plan invests $75 million in alternative energy firm

The Ontario Teachers’ Pension Plan this week announced an equity investment worth up to $75 million in BluEarth Renewables Inc. (BluEarth). The Calgary-based private company develops, constructs and operates hydro, wind and solar power projects in North America.

The money is being funneled through Teachers’ Private Capital, the pension plan’s private investment department, and will be used to fund renewable power opportunities.

BluEarth was created by the founders and senior management of Canadian Hydro Developers Inc., and has now raised over $160 million in equity from ARC Financial, Teachers and other investors.

“We are pleased to be partnering with ARC Financial and a proven and experienced management team in the renewable power sector,” said Jane Rowe, Senior Vice-President, Teachers’ Private Capital. “BluEarth’s principals have a strong track record of success and we look forward to supporting their efforts to create another leader in the growing market for renewable power.”

“We are excited to be working once again with both the BluEarth team and Teachers’. With this investment, the team has both the operational expertise and the financial foundation to pursue a growth strategy in the renewable power market,” said Brian Boulanger, an ARC Financial Managing Director.

“With the great support of our investors, Teachers’ and ARC, we are well positioned to acquire and develop renewable power projects and operating assets that may be lacking capital and experience,” said Kent Brown, President & CEO of BluEarth. “With the capital to support our growth strategy and Canada’s most experienced renewable energy team, we have a powerful combination to propel BluEarth into a leading renewable power producer.”

Teachers is one of the largest pension plans in Canada, with more than $96 billion in net assets. The plan was somewhat slow off the mark in developing a responsible investing plan but now includes environmental, social and governance (ESG) matters as risk factors, weighing their potential impact on long-term performance.

"We don’t use non-financial criteria to create “screens” that include or exclude certain investments – we make choices based on anticipated risk-adjusted performance," Teachers says on its website. "Avoiding specific sectors or investments for non-financial reasons could reduce the fund’s long-term investment return."

Thursday, December 9, 2010

U.S. looks closer to home for fuel options

In the wake of the oil spill disaster off the Gulf of Mexico, U.S. researchers are seeking new unconventional fuel sources. However, a new report warns that some of these new projects face significant environmental and financial problems.

The report, commissioned by Ceres and written by David Gardiner and Associates, notes that the major oil companies are all researching at least 24 coal-to-liquid projects; one-half of those projects could generate 170 million barrels of liquid fuels per year. But it’s a costly plan, with estimates ranging from $2 billion to $7 billion per plant.

“There are costs that go along with the benefits of extracting and exploiting these unconventional fuel sources,” said New York State Comptroller Thomas DiNapoli. “Before investors can fully assess the benefits of developing oil shale and liquefied coal projects, we need full disclosure of the environmental, regulatory and technological risks surrounding these unproven reserves. Every investor has to take a strong look at these risks.”

The U.S. government is increasingly concerned about conventional oil and gas energy sources and the country’s slow progress in its development of unconventional liquid fuel, environmental group Ceres noted in a press release issued today.

That’s why more than 25 companies are involved in another pricey project: oil shale development. “With technologically recoverable reserves estimated at about 800 billion barrels in the U.S. — three times the size of Saudi Arabia’s proved reserves — oil shale offers vast development potential. Shell’s recent agreement to develop oil shale in Jordan at a projected cost of $20 billion illustrates the potential cost of these projects,” Ceres said in its release.

Coal-to-liquid production is projected to rise in the U.S. from virtually no production today to about 91 million barrels per year by 2035, according to the Energy Information Administration. Major companies involved in CTL development include Shell, Rentech, Baard and DKRW.

Ceres is calling on those firms to provide more information on just how coal-to-liquid might work, and any potential dangers involved. “Investors with holdings in companies involved in coal-to-liquids and oil shale projects should ask these companies to open their books and explain their strategies for managing these risky projects,” said Mindy Lubber, president of Ceres and director of the $9 trillion Investor Network on Climate Risk. “The energy- and water-intensive nature of both coal-to-liquids and oil shale, combined with technological uncertainties and state and federal requirements for low carbon fuels spell diminishing returns for investors.”

“We are leery of investing in oil shale and coal-to-liquids, and have turned down specific opportunities to invest in CTL developers in the past,” said Steven Heim, Managing Director and Director of ESG Research and Shareholder Engagement, Boston Common Asset Management, LLC. “The energy resource seems promising but huge obstacles may be regional water scarcity and the lack of large-scale carbon capture and sequestration infrastructure.”

For example, oil shale and CTL development may be constrained by each technology’s need for large amounts of water. Oil shale production requires 1.5 to 5 barrels of water for every barrel produced while CTL requires 5 to 7 barrels of water for every barrel of produce produced. Water constraints are especially problematic for oil shale production, because the reserves are located in the water-stressed states of Colorado, Wyoming and Utah. Then the question becomes: Would the U.S. look north of the border for Canada’s vast water supplies? In a dire situation, the answer to that question seems obvious.

Tuesday, December 7, 2010

AGF and Acuity already talking synergies

It may have come as a surprise to industry watchers, but to hear AGF chair and CEO president Blake Goldring and Acuity president and CEO Ian Ihnatowycz tell the story, a merger between the two Toronto-based mutual fund firms was only a matter of time.

The two executives use similar terms to describe their companies, such as innovation, integrity, and most of all, independence. AGF has been around since 1957, while Acuity was established in 1990, significant periods of time for independent fund companies in Canada.

“We’re proud of what we’ve accomplished over the last 20 years, Ihnatowycz said on November 30 in a conference call after the friendly takeover bid was announced. “But we came to the conclusion that we had to rapidly increase our size to increase our competitive edge.”

“AGF is a well-respected firm and we share similar values – it’s a natural progression for us and an excellent fit.”

Despite the similarities of the two companies, there are several critial differences. Firstly, AGF is much larger, with $51 billion in assets under management (AUM), compared to Acuity’s $7 billion.

And AGF is much stronger in the retail market, which represents 63% of the company’s AUM; Acuity’s equity products make up less than one-third of its AUM. This is where the synergy starts to make sense. AGF has only 35% fixed income and balanced products compared to Acuity’s 69%.

“[The takeover] allows us to offer key products that are in demand – balanced and fixed income,” Goldring said. “Acuity’s specialty in SRI will allow us to appeal to a broader range of investors in a space that few of our competitors have entered.”

Now, that’s not quite true; a number of “traditional” mutual funds have either bought or created their own line of SRI products, with limited success, notes Toronto-based SRI advisor Sucheta Rajagopal. Remember RBC’s big splash when it announced a line of SRI products managed by Jantzi Research (now renamed as Sustainalytics)? The advertising around that particular fund family was underwhelming, to say the least. Not to be too hard on RBC, but try finding the Janzti SRI funds on RBC's website. “AGF, we’ll be watching!” Rajagopal says.

Still, AGF remains optimistic about Acuity’s product line, which includes several popular SRI funds: Acuity Social Values Canadian Equity Fund, Acuity Social Values Global Equity Fund and Acuity Social Values Balanced Fund (formerly the Acuity Clean Environment Equity Fund, established in 1991 and one of the country’s oldest SRI funds).

“SRI is experiencing significant asset growth worldwide as pensions and other institutional investors are taking note,” says AGF Senior Vice President and Chief Financial Officer Robert Bogart.

There are no immediate plans to change Acuity’s portfolio management team nor its fund lineup and the company will retain the name Acuity Funds Ltd. as a wholly-owned subsidiary of AGF.

Under the terms of the agreement, Acuity shareholders will receive a combination of 60% cash and 40% AGF Class B Non-Voting shares. A portion of the purchase price will be deferred and is subject to an AUM-based adjustment over three years from closing. The acquisition, worth about $325 million, requires regulatory approval and is expected to close on February 1, 2011. Both Goldring and Ihnatowycz admit that specific fund mergers are a possibility once the two companies are able sit down and discuss such details.

Ihnatowycz will be retiring from the day-to-day operations of Acuity but is expected to sit on the board of directors of the new company.

Saturday, December 4, 2010

New software to benefit African farmers

A new technology project could provide small African farms in Ghana with timely crop information, enabling farmers to increase their incomes.

IFC (a member of the World Bank) and Soros Economic Development Fund have both invested $1.25 million into Esoko, a Ghanaian technology firm whose new software takes advantage of the fast-growing mobile phone market in Ghana.

The technology allows farmers "affordable and timely access to market information that can help them negotiate better prices and improve the timing of getting their crops to market," according to a joint IFC/Soros press release, mainly through the use of text messaging.

"Our platform was developed by African software engineers here in Accra, Ghana and has been a totally local market-drive initiative," said Esoko CEO Mark Davies. "IFC and SEDF have a strong track record of helping local companies get this funding and advice needed to expand into new regions and markets. With their support, we hope to export this African technology all around the world."

The software allows different parties in the agricultural chain to exchange real-time market information. Farmers receive current demands, prices of crops and the location of seeds and fertilizers directly on their mobile phones. Associations and governments can share critical information with thousands using a bulk-text messaging feature, IFC and Soros added in their news release.

The technology is already being used in nine African countries.

Esoko is also publishing the first commodities indices in Africa in an effort to ensure that farmers are fairly compensated for their crops, as formal commodity exchanges are very rare on the continent. The company is initially publishing two indices for 12 agriculture commodities in seven markets in Ghana.

For a video on Esoko's work, please visist:

Tuesday, November 30, 2010

Mobilizing Private Capital for Public Good

‘Canadians have long relied on governments and community organizations to meet evolving social needs while leaving markets, private capital and the business sector to seek and deliver financial returns. However, this binary system is breaking down as profound societal challenges require us to find new ways to fully mobilize our ingenuity and resources in the search for effective, long term solutions.’

In a ground breaking report released today Mobilizing Private Capital for Public Good, the Canadian Task Force on Social Finance makes seven recommendations that would form a national strategy and enable public, private and non profit sector stakeholders to build an effective impact investment marketplace. Impact investing is defined in the report as ‘the active investment of capital in businesses and funds that generate positive social and/or environmental impacts as well as financial returns (from principal to above market rate) to the investor.’

The most timely from my perspective was Recommendation #3. ‘To channel private capital into effective social and environmental interventions, investors, intermediaries, social enterprises and policy makers should work together to develop new bond and bond-like instruments. This could require regulatory change to allow the issuing of certain new instruments and government incentives to kick start the flow of private capital.’

As a retail advisor, I see the demand for community bonds every day. But product, simple accessible vehicles with minimums far below accredited investor thresholds, is almost non existent. A significant amount of capital from foundations and individual investors is ready to move into this market, and is snapping up the limited offerings that appear. What we need is, as the report says, ‘clear legislation and oversight mechanisms to govern the public sale of Community Bonds by non–profit organizations.’ And once that is in place, we need intermediaries to offer these bonds, and perhaps facilitate a market which provides liquidity and where, just like the regular bond market, prices reflect risk and reward. In that dynamic market various types of bonds with various purposes could be offered, and would thrive, survive or die on their merits.

Along with new types of community investment vehicles, Recommendations #5 and #7, allowing charities and non-profits to undertake revenue generating activities and to be eligible for government sponsored SME programs, will create a demand for debt and equity financing that can be met by innovative social finance markets.

Ilse Treurnicht, the CEO of MaRS Discovery District and Chair of the Task Force on Social Finance, in her introduction to the report says, ‘Our hope is that this report will raise awareness of social finance and stimulate a national discussion about a new partnership model between profit and public good, and the opportunity it represents for Canada’s future.’ Triple bottom line investing? Bring it on!

AGF to acquire Acuity

Toronto-based mutual fund firm AGF Management has announced plans to purchase Acuity Investment Management for $325 million.

There are no immediate plans to change Acuity’s portfolio management team or its fund lineup, which includes several SRI funds: Acuity Social Values Canadian Equity Fund, Acuity Social Values Global Equity Fund and Acuity Social Values Balanced Fund (formerly the Acuity Clean Environment Balanced Fund).

Under the terms of the agreement, Acuity shareholders will receive a combination of 60% cash and 40% AGF Class B Non-Voting shares. A portion of the purchase price will be deferred and is subject to an AUM-based adjustment over three years from closing. The acquisition requires regulatory approval, AGF said in a news release, and is expected to close in the first quarter of 2011.

AGF is one of the largest independent investment management firms in the country with assets under management of $44 billion increasing to more than $51 billion as a result of today’s announced acquisition.

"We are excited about this acquisition which strengthens our position as one of Canada's premier independent investment management firms," said Chairman and CEO Blake C. Goldring in a statement. "In this era of consolidation, we have demonstrated our ability to increase scale and we are strongly committed to enhancing our presence at home and internationally as we pursue both organic and strategic growth opportunities."

"We are pleased to be joining the AGF family which shares Acuity's values of independence, integrity and innovation. AGF is an established Canadian brand with a truly global reach that shares our entrepreneurial spirit and disciplined approach to investment management," said Acuity Founder, President and CEO Ian O. Ihnatowycz, who is expected to join AGF's Board of Directors after the closing of the transaction.

Wednesday, November 17, 2010

Cleantech 10 2010

This morning 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. If this paragraph sounds familiar, well, it’s exactly what happened last year to commemorate the Cleantech 10™. Read it here.

So what’s new? (other than that you are reading this on Wordpress instead of Blogspot, or you should be!). Well, there are four new companies on the list.

ATS Automation Tooling designs and builds automation systems for many of the world's foremost manufacturers in areas as diverse as telecommunications, semiconductor, fiber optics, automotive, computers, solar energy and consumer products.

GLV Inc. is a global provider of technological solutions used in water treatment, recycling and purification, as well as in pulp and paper production. According to their website, ‘It notably stands apart for the superior performance of several of its key products and technologies, in particular with respect to their energy cost-efficiency.’

Primary Energy Recycling Corp. ‘creates value for its customers by capturing and recycling waste energy from industrial processes and converting it into reliable and economical electricity and thermal energy for its customers’ use.’

Pure Technologies develops innovative technologies for inspection, monitoring and management of physical infrastructure. “Being included as part of the Cleantech 10 emphasizes Pure’s presence as a company dedicated to sustainability and conservation,” said Jamie Paulson, Pure’s Chairman.

According to Corporate Knights, since the Cleantech 10™’s inception in 2007, it has outperformed the S&P/TSX Composite by 23 per cent (using an unweighted average of the past three Cleantech 10™’s returns as of October 25, 2010 and excluding dividends).

As of June 30th 2010 there are 129 clean technology issuers on the TSX with a combined market cap of $20.2B.

Friday, November 12, 2010

Sustainalytics named Best ESG Research House

Sustainalytics, also known as Jantzi-Sustainalytics in North America because of its connection to Canadian SRI pioneer Michael Jantzi, was named Best ESG Research House at the TBLI Conference Europe 2010 in London this week.

The TBLI Group ESG Leaders Awards honour select companies for their performance, transparency and innovation in the environmental, social and corporate governance arena.

“Winning this award would not have been possible without the long-term partnership and support of our clients, said Michael Jantzi, Sustainalytics’ chief executive officer, something for which we are profoundly grateful. We will continue to work hard to maintain their trust and to build on our status as the largest independent, and best, ESG research house in the world.”

At the TBLI conference, Sustainalytics noted their recently launched Country Risk Monitor, which evaluates sovereign debt by focussing on long-term sustainability trends.

This was the TBLI Group’s 3rd annual ESG Leaders Awards for those active in the ESG area.

Wednesday, November 10, 2010

Britons want banks to lend ethically, survey indicates

Nearly three-quarters of the British public (73%) think that banks should have ethical lending policies in place, a survey released by EIRIS this week suggests. Such policies would prevent banks from investing in, or lending to, companies involved in controversial areas such as arms manufacturing, or companies with poor records on the environment and human rights.

The national online survey, conducted by Ipsos MORI on behalf of non-profit research organization EIRIS, explores current consumer attitudes to green and ethical finance. EIRIS’s own numbers suggest that that the amount of money invested ethically in the U.K. has risen 289% over the last decade.

“The survey identifies clear evidence of the need for change in all investment and lending practices” EIRIS said in a news release. “66% of the survey respondents think that banks and other financial institutions have not learnt the lessons needed to prevent a future financial crisis but instead have reverted to 'business as usual'.“

Survey respondents were presented with a list of ways that banks or financial institutions could offer more to their customers. Ranked most highly (77%) was the disclosure of information on how and where banks lend to or invest their money.

Mark Robertson, Head of Communications at EIRIS said "It's clear that there's a lot more that financial institutions can do to build trust and persuade us that they have switched away from short-term, unsustainable investing and lending practices. Our survey shows that there's a huge appetite for a more intelligent approach to finance which places a greater emphasis on society and environment as part of a path towards a more sustainable financial future".

Thursday, October 28, 2010

Bill C-300 fails, Canada fails to take responsibility

Bill C-300, An Act Respecting Corporate Accountability for the Activities of Mining, Oil or Gas Corporations in Developing countries, was narrowly defeated in the House of Commons yesterday. The Private Members bill was sponsored by Liberal John McKay, who represents the riding of Scarborough Guildwood in Toronto.

The Bill called upon the government to create guidelines for responsible behavior for Canadian mining, oil and gas companies operating overseas, and to establish a system whereby individuals could file complaints against companies, alleging environmental or social wrongdoing. The legislation was characterized by Human Rights Watch as '...a modest, sensible piece of legislation that would be a small step to help improve human rights and the reputation of Canadian companies around the world.' Nonetheless, it received significant attention from the mining industry which launched an all out lobbying effort to have the bill defeated. Ultimately, they were helped along by 13 Liberals who managed to skip yesterday's vote, notably Michael Ignatieff and Gerard Kennedy.

While Socially Responsible Investors use engagement as a tool to push companies to improve their behavior, we recognize that public policy and regulation also have a significant role to play. Ken Neumann, National Director for Canada of the United Steelworkers, commented "Through our long term international connections, we have witnessed the negligence and abuse that some Canadian mining companies use to exploit workers and communities and degrade the environment in developing countries. The Liberal party, and especially Michael Ignatieff, displayed an astonishing lack of commitment to one of their own member's efforts to do the right thing with this bill."

See how your MP voted.

Wednesday, October 27, 2010

Regulators pushing for more environmental disclosure

Canadian regulators expect improved environmental disclosure from the country’s reporting issuers and have released a guidance document towards meeting that goal.

“Issuers are increasingly recognizing the current and potential effects on their performance and operations, both positive and negative, that are associated with environmental matters,” states the document, which was released by the Canadian Securities Administrators, the umbrella group for Canada’s provincial securities regulators, yesterday.

“A number of investors are increasingly interested in how environmental matters affect issuers and have been requesting information about these matters from issuers through a number of avenues, such as shareholder resolutions and the issuance of surveys,.”

And that where’s the disconnect lies, the CSA document suggests.

During the OSC’s 2009 corporate review, concerns were expressed about the adequacy of disclosure about environmental matters.

For example, material information is found in voluntary reports and not in securities regulatory filings; and the information provided is not necessarily complete, reliable or comparable among issuers.

“Boilerplate disclosure does not provide meaningful information to investors,” the CSA document notes. “The information is not integrated into financial reporting.”

And it’s not as if those guidelines don’t already exist: there are five key disclosure requirements in the CSA’s documents that relate to environmental matters

The documents list the numerous risks an issuer faces when it does not include robust environmental reporting, such as litigation, physical risks (including health and safety), regulatory risks, and reputational risks. “How an issuer addresses environmental matters can have a positive or negative impact on core intangible assets such as brand value and consumer confidence.”

And that last point could be the key, particularly in the wake of the disastrous Gulf oil spill.

Eugene Ellmen, executive director of the Social Investment Organization, concedes that that the CSA is only issuing guidelines, which won’t actually change reporting obligations.

“However, as a guidance document, I expect that this will receive a lot of attention. Corporate counsel and CFOs place a lot of weight on guidance from securities commissions, so we believe this will create new expectations on companies on environmental reporting issues. This is especially true because companies are paying so much attention on environmental issues in the wake of the BP oil disaster.”

“While it’s not mandatory that companies follow the recommendations, the guidance includes practical, easily implementable suggestions that we believe will establish a new paradigm for corporate reporting on environmental issues.”

Ellmen points out one particular example of an issue he thinks will be important: asset retirement obligations (AROs). “The guidance is quite clear that where AROs are material to an issuer, then information on the costs of retiring the asset should be disclosed by the issuer if they are easily available. This is expected to increase the amount of information on the costs of remediating the oil sands sites in Alberta, for example.

“Another example is on climate change. If companies have expectations for the price of carbon in the future, it is recommended that they make reasonable disclosures on this, and discuss the impacts of various price scenarios on their future operations.”

“We believe that this will create higher expectations for environmental disclosure by Canadian companies, and help to establish a new paradigm for environmental reporting globally.”

2010 Clean Capitalism Report

A webinar today launched the 2010 Clean Capitalism Report, a joint initiative of Corporate Knights and the Delphi Group. The report includes an analysis of the ESG status of S&P/TSX 60 companies, benchmark rankings, and best practice highlights.

The intention of the report is to provide companies, regulators and investors with data and analysis to help drive sustainability performance for leading companies in Canada. Data was collected on 13 indicators in 4 categories, Environmental, Social, Governance and Transparency.

Toby Heaps of Corporate Knights summarized 3 core takeaways from the report, all of which are ‘encouraging’:
• companies who do not have sustainability formally embedded in their governance structure are now in a minority
• linking compensation to sustainability performance is mainstream and deepening
• disclosure of core environmental metrics is approaching critical thresholds, increasingly driven by investors

However, one of the most distressing findings was that 41 of these 60 companies do not have a single visible minority or Aboriginal on their Board. To the extent that Boards have any diversity at all, it is the presence of a few women. Steven Pacifico, Delphi’s Manager of Stakeholder Relations and Sustainability, got props for highlighting this result and pointing out that “these numbers are low and not representative of the Canadian multicultural landscape.”

An interesting discussion took place regarding the lack of consistent and comparable data. Melissa Shim of Corporate Knights stated at the beginning of the webinar that there were data limitations regarding comparability and consistency particularly for indicators that fall under voluntary disclosure. Steven Pacifico said there was “…a real need for standardization of metrics, especially for the investor community. This will make it easier for the people who seek out this information to be able to analyze it, and push for performance improvement.” Toby Heaps added that work was being done on this front, notably the International Integrated Reporting Committee, a joint venture of the Prince of Wales’ A4S (Accounting for Sustainability) project and the GRI.

While transparency is a worthy goal, Ted Ferguson of Delphi identified the thorny issue of how to reward transparency, but still acknowledge the poor results that are being revealed – “a tension that will be here for a while”
Ted Ferguson concluded the call by suggesting that we are seeing “a shifting of greater responsibilities and higher expectations onto the corporation as part of the social contract.”

The 2010 Clean Capitalism Report is the first edition of an annual ‘yearbook’ tracking sustainability performance and trends for the S&P/TSX 60 companies. To order the report, please contact Sue Barrett of the Delphi Group.

Wednesday, October 20, 2010

AIMCo signs on to UNPRI

The Alberta Investment Management Corporation, with assets under management of $70 billion, has become the latest major Canadian pension plan to become a signatory to the United Nations Principles for Responsible Investment UNPRI).

AIMCo joins ten other Canadian institutional PRI signatories, including Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, British Columbia Municipal Pension Plan, OPSEU Pension Trust, Public Service Alliance of Canada (PSAC) Pension Fund and the British Columbia Investment Management Corporation. Including investment asset managers and professional services partners, Canada has 34 signatories; the global total is 822, according to the PRI website.

Other recent PRI signatories include Thomson Reuters USA and U.S. asset management giant Capital Group International, which manages an estimated $1 trillion in assets under management. Capital is privately-held and largely eschews marketing, however it is considered one of the more mainstream asset managers who have signed on to the PRI. Capital offers a large group of mutual funds in Canada, skewed towards international equity products.

The UNPRI, established in 2005, provides a framework for investors to consider the growing view among investment professionals that environmental, social and corporate governance (ESG) issues can affect the performance of investment portfolios.

Wednesday, October 13, 2010

European SRI assets nearly double to five trillion euros

Eurosif today released its 2010 study of European SRI assets, which revealed a “spectacular” 87% increase to five trillion euros, up from 2.7 trillion euros in 2008.

The European study breaks down responsible investment assets under management (AUM) to Core SRI and Broad SRI. Core SRI, consisting of values-based exclusions and positive screens, totalled 1.2 trillion euros, while Broad SRI, representing simple exclusion, engagement and integrations approaches, was estimated at 3.8 trillion euros.

“SRI has shown a remarkable resilience to the ongoing global financial crisis, in spite of evident country variations,” the study says.

Eugene Ellmen, executive director of Canada’s Social Investment Organization agrees that the report confirms an impression held by the SRI industry worldwide that there has been continuing buoyancy even after the meltdown of 2008. “In the European case, this has been led by some explosive growth in ESG integration, which is the growing use of tools to incorporate environmental, social and governance factors into investment analysis and practice,” he added.

The European SRI market remains driven by institutional investors, representing 66% of total AUM. “These investors are especially active in some of the larger European markets, such as the Netherlands, Switzerland, the Nordic countries and the United Kingdom.”

The share of retail investors has also increased in nearly all countries covered in the study, 19 in all, including for the first time, Poland, Greece, Cyprus, Estonia, Latvia and Lithuania. “The Eurosif research shows that Austria, Germany, Belgium and France have all seen their share of retail markets increase notably.”

Bonds are now the favoured asset class of European SRI investors at 53%, while equities have dropped to 33%. This is partially explained by the dominance of institutional investors, who traditionally allocate substantial funds to fixed income investments.

Microfinance funds are also beginning to generate interest from SRI investors, with survey participants noting the need for asset diversification in their portfolios.

“A vast majority of SRI investors predict that demand from institutional investors will be the main driver for SRI growth in the next three years,” the study notes. “Other important drivers include demand from retail investors, media coverage, legislation and international initiatives, such as the UNPRI.”

Perhaps surprisingly, the survey reveals that the global financial crisis had a more positive than negative impact on the SRI industry, with respondents saying that the financial crisis made them more aware of the need to integrate ESG risks. “From a demand perspective, the increase for more transparent products has correlated well with the SRI philosophy. Environmental and social crises have also acted as a wake-up call for many investors.”

This is the fourth time (2010, 2008, 2006 and 2003) Eurosif has released a detailed report on the European SRI market. Canada’s Social Investment Organization has been releasing similar bi-ennial reports on the Canadian SRI market since 2000.

The 2008 Canadian report concluded that assets invested according to socially responsible guidelines increased to $609 billion, a 21% increase from 2006. “In Canada, the SIO will be conducting research this fall to determine the size and scale of the industry as of June 30, 2010,” Ellmen notes. “We don’t expect to see the same kind of growth reported in Europe, but we do expect to see some increase from our figures in 2008, due to growth from large public pension plans, foundations, high net worth individuals and the retail sector.” The next SIO report is due in early 2011.

Read the full Eurosif study.

Monday, October 4, 2010

Accountants group assesses mainstreaming of ESG issues

Mainstream institutional investors are beginning to incorporate ESG factors into their decision-making process, according to a new report from the Canadian Institute of Chartered Accountants (CICA).

“While a few Canadian institutional investors were early adopters of integrating ESG issues into investment decision making, more now appear to be doing so,” the report states. “Further, as capital flows are increasingly global, investment policies and practices in other jurisdictions around the world may, in future, be expected to impact Canadian capital markets and issuers.”

ESG information was originally viewed as being of interest only to “socially responsible” and/or “ethical” investors, the report notes, but there is now evidence that ESG issues are increasingly of interest to mainstream institutional investors in Canada and worldwide.

“Institutional investors tend to have a longer investment time horizon and are increasingly showing signs of interest in ESG factors,” said Lisa French, principal, guidance and support, CICA in a press release accompanying the study. “These investors are expressing their expectations for corporate disclosures beyond what is currently provided in financial reporting.”

The CICA report points out that two significant legal interpretations about the principle of fiduciary responsibility of investment trustees has led to a fundamental shift in consideration of ESG matters in investment decision making. “In particular, in the past, trustees may have argued that it was beyond their fiduciary responsibilities to consider ESG matters in an investment decision. Today, it may be considered a breach of fiduciary duty not to consider such matters.”

“Our view is that ESG issues directly affect long-term investment returns,” the British Columbia Investment Management Corporation states. “As a result, we are active equity owners and encourage positive ESG practices through our proxy voting decisions, direct engagement with companies, and interactions with regulators and policy makers.”

Interestingly, some institutional investors are beginning to look to ESG information not only to better understand risks but also because they see the possibility for a “sustainability alpha” (alpha is defined as returns achieved above the costs of the risks assumed).

Many interviewees in the study pointed to serious shortcomings in the quality of ESG information currently available. They called for the creation of a standard format or template for presenting information that would assist investors in locating the data they want for decision making.

Other investors noted the lack of standardized, comparable, sector-based metrics that are updated regularly (and possibly audited by an independent party).

“Metrics need to be consistently and comparably defined and calculated,” the study says. “This would serve to enhance the usefulness of ESG data points, enabling them to be incorporated with more confidence into models used by fundamental analysts.”

Poor corporate disclosure was also an issue for institutional investors, as was the timeliness of ESG information. “Some companies, for example, provide annual sustainability reports but they are not normally published at the same time as the annual financial reports; other companies only provide sustainability reports every two years or on a less frequent basis.”

CICA says that regulators have a responsibility to ensure that material information needed by capital markets is provided in regulatory filings. Other organizations, such as industry associations, academic institutions, professional bodies and non-governmental groups could assist capital markets by conducting research, developing key performance indicators by industry and working to develop a more integrated framework that would deliver comparable, consistent and reliable information for investors.

For the purposes of the study, interviews were conducted in Q4 2009 with staff involved with ESG analysis at 15 mainstream institutional investors and two service providers. The interviews focused on what ESG information these investors seek, where they obtain it, how they use it and how satisfied they are with the information they obtain.

Thursday, September 30, 2010

a little action on the tar sands...

In response to serious concerns about water quality around the tar sands, Environment Minister Jim Prentice announced the creation of an advisory panel to look into water testing in the Athabasca river.

“The purpose of their inquiry is to make recommendations on what a state-of-the-art water monitoring regime should look like and then we will move to ensure that that is in place," Minister Prentice said at a news conference earlier today.

Chaired by Elizabeth Dowdeswell, a former Executive Director of UNEP, the panel will have 60 days to report back to the government. The other panel members, all academics, are Dr. Peter J. Dillon, Dr. Subhasis Ghoshal, Dr. Andrew D. Miall, Dr. Joseph Rasmussen, and Dr. John P. Smol. For capsule bios, click here. At this time, the government has said that the findings of the advisory panel will be made public.

"We are determined to develop Canada's oil sands in a manner that it sustainable and environmentally-sensitive," noted Minister Prentice. "This independent review by some of Canada's most respected scientists is a critical step in ensuring that environmental issues are balanced with economic considerations."

Tuesday, September 28, 2010

More Canadian mutual funds supporting shareholder proposals

Mutual fund votes for shareholder proposals rose to more than 21% in 2009 from just 3% in 2006, according to SHARE’s annual Proxy Voting by Canadian Mutual Funds report.

The numbers are significant since such proposals are almost always opposed by management, says Jackie Cook, founder of and a co-author of the report.

Although fund support for corporate management is declining, it remains very high except among funds managed by Canada’s three major SRI fund companies (Ethical Funds, Inhance and Meritas).

“The three SRI fund families we surveyed are far less supportive of management than each of the other fund families every year, and in every category of proposal examined,” the report states. “The vote reports of these fund companies indicate a strong desire for change on boards, in auditor appointments and on equity-based compensation. This sentiment is perhaps no better expressed than by the SRI fund companies’ strong support for shareholder initiatives, many of which were filed by one of these companies.”

“At the other extreme, the ten largest Canadian retail fund families voted, as a group, a higher percentage of their ballots in favour of management on all the issues we examined than the average of the 21 funds we surveyed. As these funds represent an enormous proportion of the voting power of all funds in which an individual can invest, they deliver a strong signal in favour of current corporate practice.”

Canadian mutual funds were particularly critical of management proposals on executive compensation, voting against 1 in every 5 in 2006 and 1 in 4 in 2009, the report notes. “SRI funds were more than four times more likely to reject management proposals on executive compensation than non-SRI fund families in 2009. The gap between SRI and non-SRI funds’ voting records on this issue has increased in the last four years.”

The proxy numbers were boosted by strong support from Canadian mutual funds on “say on pay” shareholder proposals filed at Canada’s largest banks. For example, in 2008, funds included in the report voted 52% of their proxy ballots for say on pay. The following year, fund support increased to 68% of ballots.

The report also notes a marked increase in mutual fund support for shareholder proposals on environmental and social issues, up to 39% in 2009 from 26% in 2006. SRI mutual fund companies supported 98% of the proposals that raised environmental and social matters.

“Mutual funds vote billions of shares every year. Fund unitholders cannot direct how those shares should be voted because they do not own shares directly,” says Laura O’Neill, SHARE’s director of law of policy. “What they can and should do is examine the voting decisions of their funds on key issues identified in this report and let their fund companies know if they have concerns about how this important franchise is being exercised.”

SHARE and analyzed four full years of data on votes cast by 258 funds managed by 21 fund companies in connection with the shareholder meetings of more than 200 senior Canadian issuers.

Thursday, September 23, 2010

SRI practices now common among large pension funds: UN report

Nearly half of the world’s largest pension funds report that they are incorporating ESG issues in the investment process, according to a report from the United Nations Conference on Trade and Development.

Approximately one-third of the funds studied are reporting ownership policy decisions related to ESG and are promoting RI practices and collaboration within the investment industry, and one-quarter of the world’s 100 largest pension funds have signed up to the United Nations Principles for Responsible Investment.

The findings suggest that commitment to responsible investment practices among large institutional investors has become common, states the Investment and Enterprise Responsibility Review.

About half the funds studied displayed some RI activity, and more than half of the assets managed in the sample were held by funds engaged in RI practices. “Large leading funds are more active in the area of RI and appear to be actively engaged in the mainstreaming of ESG issues.”

On the other hand, half the funds studied reported no RI activity whatsoever. “Given the emergence of these two groups … all institutional investors [should] be encouraged to formally articulate their stance on RI to all stakeholders. Such disclosure would be in line with the current disclosure practices of funds in other areas.”

The least found indicator of RI among the sample group was annual reporting, the report notes, with only 13 of the 100 funds reporting on RI practices.

The report notes that as RI becomes increasingly commonplace amongst institutional investors around the world, there is a corresponding increase in the level of investor pressure on companies to improve their ESG practices.

The report praises the Canada Pension Plan Investment Board, stating that the fund “excels in active ownership reporting.”

“With the assistance of ISS Governance Services (a division of RiskMetrics Group), CPPIB makes available via its website a searchable database of its proxy voting activity, which is implemented by ISS according to CPP’s voting guidelines.”

The top 100 largest pension funds in the world were extracted from Watson Wyatt’s Pensions and Investments list of the world’s largest 300 pension funds. The funds have combined assets under management of $8.6 trillion.

Wednesday, September 22, 2010

Reporting - 'Its not just a cost'

Ontario's new GHG Reporting Regulation and Emerging Cap-and-Trade Program. This mouthful of a title was for a webinar presented today by the Delphi Group. It was a highly informative overview of where we are now, where we are headed, and the opportunities for corporate Canada.

Jim Whitestone, from Ontario’s Ministry of the Environment, began with an overview of the three regional Cap and Trade programs, the Western Climate Initiative (WCI), the Northeastern Regional Greenhouse Gas Initiative (RGGI) and Midwestern Greenhouse Gas Reduction Accord (MGGRA).

A key precursor to cap and trade is accurate reporting of emissions. Ontario’s new regulations call for reporting of 2010 emissions in 2011 and annual reporting thereafter. Third party verification of emissions will be required starting with the 2011 emission reports. Ontario’s quantification methods are either an adaptation of WCI methods or US EPA methods. Smaller emitters of 10,000 to 25,000 tonnes are not required to report at this time. In an effort to keep things simple for reporters, Ontario continues to work with the federal government and other provinces to harmonize reporting requirements and methods where feasible.

Nancy Coulas, Director of Environmental Policy for Canadian Manufacturers and Exporters began by stating that ‘climate change is a key issue for our membership’. Using graphs she showed that although manufacturing has been growing, emissions have been growing at a slower pace, indicating that firms in this sector are reducing GHG emissions. Her key point was that we need to focus on practical outcomes that manufacturers can achieve while making a competitive rate of return on investment.

How does GHG reporting and management align with existing corporate priorities? That’s the question Jason Grove of the Delphi Group thinks that companies should be asking. He suggests that companies should aim to deliver value through GHG reporting, “it’s not just a cost”. “Who are your stakeholders? What are their interests? How can you realize value from meeting their needs and expectations?” Mr. Grove identified four stakeholder groups - regulators, internal stakeholders such as employees, investors (naming SRI funds as a relevant group here) and the public.

The message overall was that as we transition to a low carbon economy, successful companies will be those that focus on opportunities as well as costs.

Tuesday, September 14, 2010

Basel III – What’s all the fuss about?

Right wing commentators have talked about how increased capital requirements mean that banks won’t be able to get out there with their money and stimulate the economy. Left wing commentators hope that the buffer keeps executive compensation in check when tough times are upon us again. But overall, the Basel III changes are not going to have a meaningful impact on banks, nor are they going to prevent another financial meltdown.

The new regulations require banks to increase their core tier-one capital ratio to 4.5%, up from the current 2%. In addition, they will have to carry a capital conservation buffer of 2.5%. And this is all going to be phased in gradually – banks have until 2019 to be fully compliant!

According to the Basel Committee “The purpose of the conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. While banks are allowed to draw on the buffer during such periods of stress, the closer their regulatory capital ratios approach the minimum requirement, the greater the constraints on earnings distributions.” This means that, maybe, banks have to be more cautious about the timing of bonuses and dividend increases.

The new requirements are not onerous. While it is laudable that 27 countries have got together to accept these rules, thereby creating a level global playing field, it has not materially changed the banking environment. Don’t let anyone tell you it has.

Wednesday, September 8, 2010


Who says business news is boring…I have truly enjoyed following the hijinks at Hewlett Packard over the last month or so. In the latest installment, Mark Hurd, HPs ex CEO, gets hired by Oracle on Monday, and HP sues Mr. Hurd yesterday, seeking injunctive relief. More to come!

Aside from its entertainment value, why does this story matter? Because it shows us once again how difficult it is for a company to excel in the environmental, social and governance spheres, and the balancing act we must manage when choosing companies for SRI portfolios.

Hewlett Packard has long been a company that shines in E and S, but has a hard time with G.

Mark Hurd, the former Chairman and CEO of Hewlett-Packard, once stated, “Environmental responsibility is good business. We’ve reached the tipping point where the price and performance of IT are no longer compromised by being green, but are now enhanced by it.” Last year, when Newsweek ranked America’s top 500 corporations on environmental issues, Hewlett Packard was first although cooler heads at Greenpeace put it right in the middle of the electronics pack. HP has garnered enough awards and accolades that it is commonly accepted that they are a leader on the environmental front.

On the social side, HP has a commitment to human rights, and has long been renowned, pioneered by Bill and Dave, for having one of the most people friendly workplaces. The HP Way was a management philosophy that put people ahead of products or profits.

However, when it comes to Governance….

From the time that Carly Fiorina became Chair (and CEO) in 1999, the Hewlett Packard board has been in trouble. Characterized as dysfunctional, primarily due to a clash between the HP Way and the Fiorina Way, the Board nonetheless managed to keep it together enough to fire Fiorina in 2005. This was followed by criminal charges against new Board Chair Patricia Dunn for engaging in illegal monitoring of other Board members, and insider trading allegations against Mark Hurd and other senior executives and directors of HP.

And now, the Boards removal of Mark Hurd as Chair and CEO, although quick and efficient, lacks transparency. Michael Schrage, writing in the Harvard Business Review suggsts that “HP's directors may have been absolutely right to force Hurd's departure. But the firm's fiduciaries wrongly missed a world-class opportunity to simultaneously respect the best interests of its stakeholders and expand the boundaries of good governance.“

And I’ll give the last word (for now) to Oracle CEO Larry Ellison. "Oracle has long viewed HP as an important partner. By filing this vindictive lawsuit against Oracle and Mark Hurd, the HP board is acting with utter disregard for that partnership, our joint customers, and their own shareholders and employees. The HP Board is making it virtually impossible for Oracle and HP to continue to cooperate and work together in the IT marketplace."

Tuesday, August 31, 2010

Do we really need another acronym?

The responsible investment movement has struggled for years with acronyms. The well-meaning folks who coined the term SRI (socially responsible investing) couldn’t imagine the heated debate those three letters continue to generate.

Actually, it’s mostly just the one letter – R for responsible – that causes otherwise sensible people to turn into raving lunatics. How many times have you heard this: If SRI is responsible, does that make all other investments irresponsible?

No is the answer, but it’s a fair question. Nobody wants to be judgmental, but really, isn’t that what investing is all about? Judging which investment vehicles you think will outperform the rest of the pack? Viewed from that angle, SRI is no different than any other investment approach – stocks are chosen from a universe of defined parameters.

Small cap, large cap, emerging markets, global bonds, technology, finance, health-care, water, you name it, there’s a specialty fund for just about everything.

Still, SRI is more than just a specialty or niche fund category, and that’s probably why the debate over the word “responsible” has continued. The institutional investment community neatly sidestepped the issue by adopting ESG (environmental, social and governance). It works, but ESG hasn’t been widely accepted on the retail side.

The latest call for change comes from Matthew Kiernan, author and former chief executive of Innovest Strategic Value Advisors (purchased by Risk Metrics Group and now a part of MSCI), and more recently, founder and chief executive of Inflection Point Capital Partners.

In a recent editorial posted on Responsible Investor, Kiernan proposed the adoption of SAI, or “strategically aware investing,” arguing that “if sustainability concerns could be shorn of their historical, ideological and emotional baggage, we’d all be further ahead.”

Kiernan believes that the “right” acronym “just might alleviate some of both of the intellectual and commercial confusion and anarchy of the current situation.”

“Perhaps if doing so could be rebranded and conceived as simply strategically aware investing, rather than stigmatized or ghettoized as “ESG/RI/SI investing” more institutions and asset managers might actually try it.”

Is there really any solid evidence that the current acronyms used to describe our movement are having a deleterious effect and therefore slowing down the “mainstreaming” of SRI? Could there not be other factors at play, such as the state of the economy and the well-documented advisor road block?

Furthermore, the use of words like “anarchy” to describe a debate over an acronym seems a bit over the top, and I don’t think I’m the only one who thinks that. Every time this issue comes up, my friends in the mainstream investment community almost always say: “Are you guys still arguing about that?”

And it’s a very good point. Don’t we have bigger things to worry about? Of course we do. We may not love it, but SRI is an established and well-known acronym. Advisors and investors understand what it means. My mother understands what it means.

So why muddy the waters with a new acronym, especially one like SAI, which doesn’t exactly roll off the tongue (Would we pronounce is as “sigh”?). I have a lot of respect for Matthew Kiernan - he has established himself as one of the great thinkers in the SRI community. But I’m not sure why he decided to tackle the acronym debate, an issue that should have been settled years ago, and in many people’s minds, already has been. Let’s move on to bigger and more important challenges. There are lots out there. Sigh.

Thursday, August 26, 2010

The gender gap: Investors aim to boost number of women on corporate boards

Corporations around the world should increase the number of women on boards of directors, according to a coalition of global investors managing more than $73 billion (US) in assets, including Canada’s Vancity Investment Management and Bâtirente, who recently issued a joint press release on the topic.

In 2009, GovernanceMetrics International looked at 4,200 global companies, and found that only 9% of directors on corporate boards were women. Canada was slightly better than the average, at 11.3%. Norway led the way at 36%, thanks to laws that require a minimum number of directors from each gender.

“These findings have led a number of mainstream investors to identify gender balance and diversity as a strategic issue in their investment activity", VanCity and Bâtirente said in the press release. “The investors in this new coalition have asked 54 selected companies from across the business spectrum for greater clarity about gender balance within their organizations.”

“We think that companies with diversity on boards, in terms of both gender and experience, are better long term investments, says François Meloche, Extrafinancial Risks Manager, Bâtirente. “There is a correlation between financial performance and board diversity.”

Dermot Foley, Strategic Analyst, Vancity Investment Management, says the problem goes beyond boards of directors, noting that there are no female CEOs in the top 60 publicly-traded companies in Canada. ”A diversity of perspectives on the board and in management leads to better decision-making and improves the quality of governance.”

The coalition members are all signatories to the UNPRI, and this initiative is a response to the Women’s Empowerment Principles recently developed by the United Nations Development Fund for Women and the United Nations Global Compact.

“This engagement shows that gender balance within senior corporate management is not just a social issue but also a shareholder issue”, says UNPRI executive director James Gifford. "In an increasingly complex global marketplace, companies that effectively attract, hire, retain, and promote women are often better equipped to capitalize on competitive opportunities than those who do not.”

Sunday, August 22, 2010

Les actionnaires peinent toujours à obtenir des entreprises des informations utiles et crédibles

par Mamadou Lamine Beye, Groupe Investissement Responsable (GIR)

Chaque année, des propositions d’actionnaires demandent à des entreprises des rapports sur des enjeux environnementaux et sociaux, même si celles-ci ont publié des rapports de développement durable respectant les directives de la Global Reporting Initiative (GRI). Les investisseurs figurent parmi les parties prenantes qui ont mis en place la GRI pour que les entreprises tiennent compte de leurs préoccupations dans leurs rapports de développement durable. En effet, Ceres, un vaste réseau d’investisseurs, fait partie de ceux qui ont été à l’origine de la GRI. Les entreprises qui sortent des rapports de développement durable respectant les directives de la GRI devraient donc y traiter les enjeux qui préoccupent les actionnaires. Par conséquent, ces derniers ne devraient pas avoir besoin de demander des rapports supplémentaires sur des enjeux sociaux ou environnementaux particuliers.

Nous allons essayer de comprendre pourquoi les actionnaires continuent de demander des rapports sur des enjeux environnementaux et sociaux à des entreprises qui disent respecter les directives de la GRI, et pourquoi ces entreprises continuent de répondre que les rapports demandés sont inutiles, qu’ils ne feraient que reprendre des informations déjà publiées et qu’ils engendreraient un gaspillage de ressources.

Les entreprises qui ont sorti des rapports de développement durable ne respectant aucune directive sont visées par des propositions d’actionnaires demandant des rapports spécifiques; ces propositions peuvent se justifier par des lacunes dans les informations transmises et le manque de crédibilité de ces informations. Par contre, les propositions requérant des rapports à des entreprises qui ont publié des rapports de développement durable suivant les directives de la GRI soulèvent trois questions:

1. Est-ce que le rapport demandé est redondant si l’entreprise respecte les directives de la GRI, comme le dit très souvent le conseil d’administration?

2. Est-ce que l’entreprise respecte les directives de la GRI comme elle le prétend?

3. Est-ce que les directives de la GRI couvrent vraiment les préoccupations des

Pour donner des éléments de réponse à ces questions, nous avons examiné 44 opositions à caractère environnemental visant 37 entreprises nord-américaines ayant publié des rapports de développement durable suivant les directives de la GRI, analysées par le Groupe investissement responsable en 2009. Pour évaluer l’utilité du rapport demandé par les actionnaires, nous avons utilisé deux critères, soit la disponibilité de l’information et sa crédibilité. Pour le premier critère, nous avons regardé si l’information demandée est présente dans les différentes publications de l’entreprise. Nous avons par ailleurs utilisé les niveaux de qualité fixés par la GRI pour évaluer la crédibilité de l’information.

Pour le premier critère, nous avons trouvé que certaines informations demandées par des actionnaires sont soit irréalistes, soit déjà disponibles dans les documents publiés par l’entreprise ou dans d’autres documents. Par exemple, le Free Enterprise Action Fund demandait à Exelon de décrire et d’examiner comment les mesures prises par l’entreprise jusqu’à maintenant pour réduire son impact sur les changements climatiques ont influencé le climat en général en termes de température, d’événements indésirables liés au climat ou de désastres évités. La complexité du système climatique rend quasiment impossible la disponibilité de ces informations à l’échelle de l’entreprise. Elles doivent plutôt être cherchées dans les rapports du Groupe d’experts intergouvernemental sur l’évolution du climat. Dans ces cas, le conseil d’administration a bien raison de dire que le rapport demandé est inutile.

Concernant le deuxième critère, nous avons trouvé des niveaux de crédibilité variables. La GRI a établi trois niveaux de qualité pour les rapports produits en suivant ses directives. Le niveau A est le plus élevé, suivi du B et du C. L’ajout du signe « + » indique que le rapport a été vérifié à l’externe. Ainsi, A+ représente la meilleure qualité et C, la pire. Cependant, un rapport de niveau
C est jugé plus crédible qu’un rapport n’utilisant pas du tout les directives de la GRI. Dans ces cas, il est pertinent que les actionnaires demandent des rapports supplémentaires si la qualité du rapport de développement durable de l’entreprise n’est pas satisfaisante.

Il a été paradoxal de constater que Dow Chemical, dont le rapport de développement durable a un niveau de qualité A+ de la GRI, soit visée par la même proposition depuis trois ans. En 2007, 2008 et 2009, la proposition a obtenu l’appui respectivement de 22, 23 et 29 % des voix. Malgré l’insistance des actionnaires et leur préoccupation croissante par rapport à cet enjeu, l’entreprise refuse de leur fournir une information satisfaisante portant sur l’efficacité de ses efforts pour dépolluer les alentours de l’installation de Midland. Cela montre qu’une entreprise peut respecter les directives de la GRI, tout en ne fournissant pas à ses actionnaires des réponses à leurs préoccupations. Donc, ces directives ne sont pas toujours adaptées aux enjeux qui préoccupent les actionnaires. Les indicateurs peuvent être assez généraux par rapport aux précisions que réclament les actionnaires. Par exemple, les directives demandent aux entreprises de fournir des initiatives de réduction de leurs émissions de gaz à effet de serre (GES), alors que de plus en plus d’actionnaires demandent plutôt des objectifs quantitatifs de
réduction de ces émissions.

Nous pouvons retenir de notre analyse que les demandes d’actionnaires peuvent être impertinentes ou inutiles, lorsque l’information est déjà disponible dans les documents de l’entreprise ou ailleurs, comme le clament souvent les conseils d’administration de certaines entreprises. Plusieurs sociétés qui prétendent respecter les directives de la GRI le font avec des niveaux de qualité variés, qui ne répondent pas nécessairement aux attentes des actionnaires. Or, ces derniers ont justement participé à la mise en place de ces critères pour que les entreprises couvrent leurs préoccupations dans leurs rapports de développement durable. Le fait qu’une entreprise dont le rapport de développement durable est préparé avec le meilleur niveau de qualité de la GIR n’arrive pas à répondre aux questions que se posent les actionnaires pendant trois ans montre qu’il y a une limite à considérer ces directives comme un signe de transparence et de crédibilité de l’information fournie par les entreprises.

Les actionnaires semblent avoir compris ces limites et demandent aux entreprises de participer à des modes de divulgation spécifiques, comme le Carbon Disclosure Project (CDP), le Forest Footprint Disclosure Project et le Water Disclosure Project. Toutefois, des entreprises clament tout haut qu’elles participent par exemple au CDP, tout en ne fournissant que le minimum d’informations. Certaines omettent même leurs émissions totales de GES dans leurs réponses au CDP. En attendant que les actionnaires trouvent les moyens qui permettront la divulgation des informations en quantité et qualité suffisantes pour toutes les entreprises, les signes de transparence comme les logos de la GRI et du CDP profitent à certaines entreprises qui, malgré leurs lacunes en matière de transparence, les affichent sur leurs rapports pour répondre à des exigences de certains investisseurs et clients responsables.

Mamadou Lamine Beye est un analyste en environment à l'équipe GIR à Montréal.

Thursday, July 29, 2010

MSCI job cuts – the shape of things to come?

With the recent wave of consolidation in the ESG research sector, news that MSCI will cut as many as 80 jobs as the index company combines its operations with research house RiskMetrics, doesn’t come as a big surprise. However, could this be the beginning of a troubling trend for social investors?

The consolidation merry-go-round started in 2009, when RiskMetrics acquired both Innovest and KLD Research & Analytics before RiskMetrics itself was scooped by MSCI earlier this year.

Closer to home, Toronto’s Jantzi Research teamed up with European research firm Sustainalytics in September 2009.

Earlier this month, The Corporate Library and GovernanceMetrics International (GMI) announced a merger. Analysts note that the two were perhaps the last, relatively large independent companies in the ESG research field.

Consolidation is a fact of life in the broader financial services industry, and it almost always comes with job cuts. Should we expect ESG research firms to act differently simply because they analyze companies based, at least partially, on the way they treat their employees? Probably not. It’s important to remember that ESG research is a business, like any other, and needs to be profitable to survive.

But there is a risk that this could become the old “Do as I say, not as I do” conundrum if ESG researchers violate their own policies for other companies in areas such as job security and employee rights. In a world where transparency and open dialogue are paramount, you not only have to do the right thing, but have to be seen as doing the right thing.

So, how many jobs cuts are acceptable in this new world of consolidation? And will it affect the quality of the research itself? Many SRI mutual fund companies rely on this kind of research, and they will soon have fewer choices. That doesn’t necessarily mean the quality of the product will suffer, but we’ve certainly seen examples in other industries where the big players feel free to bully their customers, simply because they know they can.

And then there’s the next generation of ESG and SRI financial analysts. Will they now be thinking twice about joining an industry dominated by a handful of large companies where job opportunities are limited?

Food for thought in the lazy days of summer. Comments are welcome.

Wednesday, July 14, 2010

The Big Short

Michael Lewis has an outstanding ability to take the complex and opaque world of the capital markets and translate it into an immensely readable story. He’s done it again in The Big Short, the story of how sub prime mortgages became A rated mortgage backed bonds, those bonds became Collateralized Debt Obligations, and from those CDOs were created synthetic CDOs. If you wanted to hedge your exposure to the CDOs, you bought credit default swaps on them. And when that towering pyramid collapsed…well, this is the story of the people who saw it coming and shorted the subprime mortgage market.

The Big Short follows several characters who watched as more and more mortgages were issued to people who clearly had a limited ability to repay them, the sub prime borrowers. And how these characters, some Wall Street insiders and some on the edges, realized that the opportunity in front of them, to bet against the sub prime gong show, would make them huge amounts of money.

Being the capital markets nerd that I am, this book was a page turner for me. I'll happily choose this stuff over John Grisham any day. As I read on though, in addition to wanting to see how it worked out for the protagonists, and Mr. Lewis does manage to create some suspense about that, two thought provoking themes emerged.

The first was how the ability to make big money and walk away drove Wall Street to create more and more arcane instruments that were increasingly divorced from their underlying collateral. Fees were booked as each deal was done, and the outrageous compensation was paid out almost immediately. These people had no incentive to think about what would happen to these vehicles 3 months down the road, let alone three years. One of the more innovative ideas around managing risks from financial derivatives is to make the creator of the product keep some percentage of it, say 30%, on their books. That would certainly have forced the investment banks to take a closer look at the CDOs they were selling.

The second is that even though those who shorted the sub prime market made a great deal of money, they didn’t rejoice. They were saddened by the moral failure of the people working in the capital markets. One of the characters we follow through the book, a hedge fund manager, says “I have a job to do. Make money for my clients. Period. But boy, it gets morbid when you start making investments that work out extra great if tragedy occurs.” This is Michael Lewis’s angle, and perhaps one of the reasons I enjoyed the book so much – that people who run money have a moral obligation to society - “the truly profane event (is) the growing misalignment of interests between the people who trafficked in financial risk and the wider culture.”

This is an excellent book about risk and reward, clear and understandable, with themes that figures prominently in the hearts and minds of the SRI community.

Friday, July 9, 2010

Risk and Reward - executives, shareholders, society

"Two years on from the global financial crisis, these tough new rules on bonuses will transform the bonus culture and end incentives for excessive risk-taking. A high-risk and short-term bonus culture wrought havoc with the global economy and taxpayers paid the price. Since banks have failed to reform we are now doing the job for them", said British MEP Arlene McCarthy (S&D).

The European Parliament passed new rules Wednesday capping cash bonuses and requiring 40 to 60% of any bonus to be deferred for at least 3 years. For those of us who saw as a silver lining in the sub prime mortgage debacle the ability to address problems in the financial services industry, this is a welcome effort.

The EU’s bank capital rules will now cover executive compensation. In addition there will be stricter capital rules on bank trading activities. According to the EU ‘Studies show that the rules are expected to lead to banks having to hold three to four times more capital against their trading risk than they do at present.’ The proposed senate legislation implementing the Volker rule addresses similar issues, limiting proprietary trading and investment activities at US banks.

Ideally, this is just the beginning. It is not only the interests of shareholders that should be protected, but the interests of all stakeholders. In an analysis of alignment of interest between executives and shareholders, Thomas F.Cooley writing in Forbes concludes ‘But it is also important to understand what (the charts) don't tell us. They say nothing about the appropriateness of the levels of compensation in any of the sectors, or disparities between the largest players and smaller companies. Further, these charts don't say anything about the alignment of managers' and shareholders' interests with those of society or taxpayers.

The latter is a particularly troublesome issue when we are talking about banking and finance. At the heart of the anger about bankers pay is the very legitimate concern that the bankers and their shareholders and debt holders benefit from a subsidy paid for by taxpayers--the subsidy that is implied by the notion that they are too big to fail. That subsidy empowers them to take bigger risks and earn bigger returns for themselves and their shareholders with all of the down side risk born by Main Street. That is the real outrage.’

Wednesday, July 7, 2010

CPPIB invests $250 million in oil sands company

The Canada Pension Plan Investment Board has purchased a 17% equity stake in Alberta’s Laricina Energy in a deal worth $250 million.

Laricina is a privately-held, Calgary-based company concentrating on the oil sands areas of western Canada.

“The investment is a very important endorsement for Laricina and we are excited CPPIB has shown confidence in Laricina’s management team and development strategy,” said Glen Schmidt, President and CEO of Laricina. “This is a strong testament to Laricina’s growth potential and continued progress towards building a leading in situ oil sands company.”

“Laricina has an experienced and proven management team and has strong growth potential from its world class resource base,” added André Bourbonnais, Senior Vice-President, Private Investments, CPPIB. “We are pleased to be making an investment that we believe will deliver attractive returns over the long term.”

In a press release, Laricina stated that “Alberta’s oil sands will continue to play an important role in the global energy mix for the foreseeable future and are vitally important to the Canadian economy, Canadian jobs and energy security. The oil sands industry as a whole is making dramatic progress in environmental management by developing practical technologies and the application of best practice.”

However, the Laricina deal is bound to be controversial, considering the CPPIB uses public dollars, in the form of funds not needed by the Canada Pension Plan to pay current benefits, for its investments. Industry news website Responsible Investor notes that earlier this year, the CPPIB opted not to support shareholder resolutions seeking environmental reports from BP and Shell on their oil sands projects. “It will come as a snub to campaigners who have urged large Canadian public pension plans to be more visible in addressing the whole tar sands issue,” Responsible Investor added.

The CPPIB is a signatory to the UN Principles for Responsible Investment and adopted its own responsible investing policy in 2005. At March 31, 2010, the CPP fund totalled $127.6 billion of which $22.8 billion was invested in private investments.

Friday, June 18, 2010

Canadian Responsible Investment Conference Update: Be true to yourself

There’s value in having a conversation about values. And that’s always been the case for advisors who want to specialize in socially responsible investing. But how do you get in front of potential clients in the first place?

“We put ourselves out there and we repel as many people as we attract,” says Stephen Whipp, an SRI advisor with Manulife Securities in Victoria. “It’s the branding, so that when someone walks in the office, they at least have an inkling of what it’s going to be like.”

Whipp learned the hard way that as an advisor, it’s important to be yourself. “Many advisors love the outdoors, they’re environmentalists, they’re active in their own community, but when they put on that suit, they’re an advisor. All they are interested in is profit and loss, the P/E ratio, all the mumbo jumbo. They get so caught up in that, they forget about who they are and what interests them.”

Read the full story, published today on

Canadian Responsible Investment Conference Update: Divestment and engagement

by Farnam Bidgoli, Jantzi-Sustainalytics

Are there limits to corporate engagement? Well, sometimes. And it depends what you mean by engagement.

The final session of the 2010 Canadian Responsible Investment Conference was a spirited and frank discussion about the dynamics of corporate engagement and what one panelist called the ‘nuclear option’: divestment.

At the outset, several of today’s panelists explicitly stated they were averse to the use of divestment. Frank Coleman of Christian Brothers Investment Services, highlighting his organization’s role as a faith-based investor committed to speaking to the conscience of companies, put it most simply: “If we leave, who will replace us? How much social change can we provoke by walking away?”

Michael Jantzi, CEO of ESG research provider Jantzi-Sustainalytics, noted that the decision to use divestment didn’t necessarily sacrifice the chance to provoke change. Jantzi remarked that many companies do not want the reputational risks associated with being publicly excluded by investors, and therefore can be pressured using divestment. However, he concurred with the other panelists that engagement can also be an effective tool – as long as it is taken seriously and not used as an excuse to delay action.

What does serious engagement look like? Firstly, be realistic: all of the panelists agreed that they had to be selective as to what cases they choose to pursue, as engagement is expensive in terms of resources and time. Speaking about the TIAA-CREF’s recent divestment from companies involved in Sudan, panel member Stephen Brown noted that the divestment process lasted three years. After considering the issue of corporate involvement in Sudan, and concluding that oil companies were enabling the human rights violations in the country, TIAA-CREF initiated an extensive engagement campaign. This meant time, resources, and a commitment to dialogue with companies. It also meant an honest evaluation of the engagement outcomes, and the willingness to move to divestment when dialogue wasn’t working.

But it can’t only be about threatening divestment: investors must have an idea of the big picture and what they want to achieve through engagement. As Coleman noted during his comments, letters, meetings and research reports are not end goals in themselves.

Companies will appreciate this clarity. In pursuing engagement, investors should act as a strategic asset to the company, not fringe dissenters. This demands consideration on the part of engaged investors regarding the scope of what is viable. Asking Lockheed Martin to halt weapons production is not a realistic request, but asking for stronger risk management on deep water drilling is.

One way of understanding the limits of what is feasible is to collaborate with other investors. After one audience member asked the moderator, Gary Hawton of Meritas Mutal Funds, about the say-on-pay shareholder resolutions the fund has spearheaded, Hawton admitted that the fund had filed the resolutions after failing to garner responses from private dialogue with the companies. He went on to suggest that if there was greater collaboration between shareholders, it may not have needed to escalate to that point, particularly since Meritas quickly found there was significant interest from other investors. Engagement and communication between investors is therefore another important facet of a serious engagement process. Coleman later reiterated this point by calling for more cross-border collaboration between U.S. and Canadian investors.

In the end, the panelists all agreed that the questions of corporate engagement and divestment are not either/or questions: instead, they represent part of the toolbox available to investors. The decision as to what to utilize from that toolbox depends on what the goal of the investor is. And if there are "limits" to corporate engagement, they are conditioned on the objectives of the investor and the shape of the engagement process.

Farnam Bidgoli is a junior sustainability analyst at SRI research firm Jantzi-Sustainalytics.

Thursday, June 17, 2010

Canadian Responsible Investment Conference Update: Advisors key to SRI sales strategy

Quebec investors don't know a lot about responsible investing, but a significant majority are interested in the concept — so interested, in fact, that 59% of those surveyed by Desjardins said they would consider investing in socially responsible investing (SRI) products. Furthermore, 64% believe that financial institutions have a duty to offer SRI products to their clients, and 92% said that offering SRI products positively affected their perception of Desjardins as a company.

Those are the main findings of a study on Quebecers' attitudes toward SRI, which was released by Desjardins earlier this week at the Canadian Responsible Investment Conference in Toronto.

Read the full story, published today on

Canadian Responsible Investment Conference Update: Engaging with the Oil Sands Sector

“When does the patience run out?” That question from Bruce Cox of Greenpeace resonated with many in the room who were perhaps more interested in disengaging from than engaging with the tar sands sector.

But, to begin at the beginning, Todd Hirsch, Senior Economist at ATB Financial in Calgary opened the discussion by providing some information on the size of the tar sands. At this time there are 52 major projects either operating or about to get going, representing 143 billion investment dollars. And it’s not all purely Alberta oriented; Mr. Hirsch told us that about 20% of that investment activity generates activity in other provinces.

This year, for the first time, tar sands royalties will surpass natural gas and crude oil royalties for the Alberta government.

However, the economic impact is not what concerns socially responsible investors. Karina Litvack from F&C Investments suggested that perception in the UK is that “this is a very worrisome activity and that risks are not being mitigated to the extent they could or should be.”

Michelle de Cordova from Northwest and Ethical Investments was categorical in her defense of remaining engaged. “You can’t change a company you don’t own. We are committed to our engagement because we see it working.” In addition to their engagement strategy, NEI’s sustainability team has produced some excellent research reports, most recently Lines in the Sands: Oil Sands Sector Benchmarking.

Unfortunately, many of the examples of how engagement is working are related to increased disclosure. While we understand that disclosure is the first step, there was significant frustration in the room at the pace of change. Karina Litvack acknowledged that engagement is a slow process resulting in incremental improvements, while some investors, particularly on the retail side, are looking for transformational change.

Questions from the audience, and the subsequent discussion, suggested that the pricing of carbon might help. One thought was that ‘if you price carbon, you will see innovation like you have never seen.’ Ms. Litvack concurred, “If the pain is not great enough, why should these companies change? Two million dollars for Shell is pocket change.” (this is the estimated extra Shell will pay based on Alberta’s Climate Change & Emissions Management Act requirement for all facilities emitting more than 100 kilo tonnes per annum of specified gases.)

It appears that the results of the engagement process need to be better communicated. Frank Arnold, an advisor in Victoria BC stated, “Ten years ago clients were broadly saying they were interested in environmental issues. Now the first thing they say is they don’t want to support the tar sands.’ While socially responsible investors are in it to drive change, there is growing frustration with the limits of engagement.

Further sessions at the conference provided more information on this topic – stay tuned!

Canadian Responsible Investment Conference Update: Impact Investing: Innovations for Social Finance in Canada

by Karim Harji, Manager for Partnership Development at Social Capital Partners, founder,

Attendees at the Canadian Responsible Investment Conference expect to hear about the hottest trending topics from the panel sessions, with well-known terms and issues Engaging with the Oilsands Sector, Innovations in Cleantech Investing, The G20 and Financial Re-Regulation, and Divestment and Engagement… and of course, (the obligatory) SRI: The View From Europe.

But a panel on impact investing and social finance? That’s probably new ground for many, given the relatively nascent stage of the discussions in Canada. An excellent panel was linked up to provide an introduction to impact investing to those who needed it, and as a reminder to the rest of us around the emerging links between the world of responsible investing and social finance.

First up was Betsy Martin, Senior Advisor with Community Foundations of Canada. Betsy began the discussion by highlighting recent work by the Community Foundations of Canada around social finance. The Responsible Investment pilot project with the seven largest community foundations is the most prominent initiative to spur mission-based investment across the network. Additionally, CFC recently commissioned a report on The State of Community/Mission Investment of Canadian Foundations, which details nine Canadian foundations and their PRI/MRI/MBI approaches. Finally, their website maintains a healthy repository of key resources around responsible investment.

Next was Alex Kjorven, Development Manager at the Access Community Capital Fund, who introduced the fund as a means of “building impact investing through entrepreneurship”. She further described microfinance as lending where character is as equally valued as the validity of business plans, and that personal credit rating is almost an afterthought. Structurally, Access is not a bank but a nonprofit, as well as a charity – and so investors can invest in the organization and receive a low financial return (up to 2%) but high social return, or choose to make a donation and receive a tax receipt. As their site describes, donations go towards operating and program expenses, including reaching out to new clients and new neighborhoods, and providing pre- and post-loan mentorship and support of our loan clients; while investments go towards the loan fund and can be withdrawn at the end of the term. Alterna Savings administers the loans, which are under $5000 and are payable within 18 months.

David Berge, Senior Vice-President, Social Finance at Vancity, provided a gem of an anecdote that I hadn’t heard before, where he talked about the beginnings of what is now one of the leading financial institutions in Canada with assets of over $14.5 billion. Vancity started with 12 members who pooled $22 in Vancouver’s Downtown Eastside, with less than $1 in returns at the time. They have clearly come a long way since then, with new loans of $2.4 billion, 30% of which is distributed each year to members and local communities.

David described some of the areas which Vancity prioritizes as it shifts its own business model, to focus on the women’s economy (twice the size of India’s and China’s economies combined), new programs in food security, social enterprise, energy efficiency, and other areas. He noted that their commitment to these emerging areas is that they are putting their best people on proof of concepts and execution, and are looking for impact and scale when taking multiple pools of capital across the organization and applying them to same set of missions. Another related example is Resilient Capital, which is seeking to build a $10-$15 million fund to lend to nonprofits engaging in social enterprise.

A number of themes around social finance emerged during a Q&A with the audience. David pointed out that even though there is an appetite for impact investing, the downside risks are not well understood. Foreshadowing the microfinance panel later that morning, David noted that people are investing in microfinance before incorporating screening into their portfolios. The bifurcation between philanthropy and investing still exists, and even between different financing vehicles that combine (both) market-rate and non-market-rate returns. He described how insured deposits place the principal risk on Vancity, and make it an easier sell to clients, and where they can see the impact of investing in social enterprise.

Audience members also wanted to know if impact investing is consistent with fiduciary responsibility, because institutional investors are potentially giving up financial returns? David remarked that the big money – pension funds, universities, etc. – are managing for multi-generational time horizons, and so they should also be including the financial and non-financial implications of their investment decisions within the fiduciary process itself. Betsy Martin noted that the Freshfields II report and the UNPRI are important reference points for institutional investors seeking clarification on these issues.

My final thought to recap this panel session: I think that the most exciting part of the entire discussion was the venue itself – at the responsible investment industry’s largest conference, with attendees spanning the spectrum of investors and intermediaries. Some of the boundaries between responsible and impact investing are beginning to blur, and perhaps even lead to some level of convergence in the short- to medium-term. Community investment is gaining more prominence as a pillar of RI, and global trends suggest that impact investing is also going to continue to become more popular. Impact investing may not be an asset class yet, but my sense is that we’ll be seeing more demand for similar panel discussions at next year’s conference sessions in Victoria, BC.

As a reference to those who are new to the conversation around impact investing and social finance, I'd recommend the following publications:

-- Investing for Social and Environmental Impact: A Design for Catalyzing an Emerging Industry (Monitor Institute)
-- Investing for Impact: Case Studies Across Asset Classes (Parthenon Group)
-- Solutions for Impact Investors: From Strategy to Implementation (Rockefeller Philanthropy Advisors)

Karim Harji is the Manager for Partnership Development at Social Capital Partners, a social finance organization which provides growth financing and advisory services to businesses that integrate a social mission into their operations. Karim founded, an online platform for the community of people and organizations that are actively trying to advance the development of a social finance marketspace in Canada.