Friday, June 24, 2011

Canadian Responsible Investment Conference: Mitigating risk through SRI

This story was initially published on

Mary Jane McQuillen has been described as a rock star in the world of socially responsible investing. The New York City-based fund manager heads up the ESG (environmental, social and governance) division of Clearbridge Advisors, which was recently appointed to sub-advise the Meritas U.S. Equity Fund. McQuillen was in Victoria this week, speaking at the Canadian Responsible Investment Conference.

Clearbridge, with $55 billion in assets under management, does the majority of its research in house, with a team of 20 fundamental analysts. For funds with a socially responsible mandate, ESG factors are integrated into the research.

“All the stocks are researched with ESG in mind,” McQuillen explains. “We decide what’s in and out at the stock selection process.” Standard screens, as requested by Meritas, are applied, such as alcohol, tobacco, weapons and pornography.

“Our clients are committed but they’re also very practical,” McQuillen says. “It’s important to look at the mission as well as performance. We seek best in class all the time but that doesn’t seem to happen in the world today. We acknowledge that sometimes you’re not going to find best in class. So we might pass on the industry or we might actively engage with companies.”

Clearbridge has approximately 1,000 meetings a year with companies and conducts regular on-site inspections. McQuillen believes this allows Clearbridge to drill down to the culture of companies. “A lot of companies are very good at filling out surveys—but you want to see a translation of what they put on paper to the operation of the business.

“There are a lot of companies with great compelling stories that are below the radar. We think it’s great to invest in those companies as well.”

The strategy for the Meritas fund is to invest mostly in large-cap stocks, about 45 names, with a long-term approach. “It’s not trying to be high risk and high return; it’s higher return with less risk.”

“We’ll usually be in line with the benchmark when times are good,” McQuillen notes. “When the market tanks, we tend to lose less.” In 2008, the Clearbridge portfolio was down 25% while the S&P 500 lost 37% over the same period.

Similar to many ESG specialists, Clearbridge faces challenges in the advisor channel. As in Canada, many U.S. advisors don’t understand SRI or have misconceptions about it, McQuillen says. In a survey, Clearbridge advisors pointed to myths such as underperformance or the so-called moral agenda of SRI funds. McQuillen says the solution is education. “Many advisors simply don’t know what the current situation is.”

Thursday, June 23, 2011

Canadian Responsible Investment Conference: Ambachtsheer wins Lifetime Achievement Award

Jane Ambachtsheer has won the SIO's annual Lifetime Achievement Award, presented on Wednesday night in Victoria at the organization's annual conference.

Ambachtsheer heads Mercer's global responsible investment team and is an adjunct professor at the University of Toronto where she teaches a graduate course on SRI.

The other nominees for this year's award were Deb Abbey, Tessa Hebb and Bob Walker.

Michael Jantzi, CEO of Jantzi-Sustainalytics, won the inaugural Lifetime Achievement Award in 2010.

What a start to the Conference!

Robert Bateman opened the 2011 Responsible Investment Conference with an inspirational speech that was at times amusing, at times informative and always thought provoking.

Although, as would be expected from a renowned naturalist, his themes come from nature, those themes resonate in the world of SRI. Notably, thinking about the cost of things that today we deem free and the long term impacts of today’s often short sighted decisions. Mr. Bateman quoted Chief Seattle, ‘Man does not weave this web of life. He is merely a strand of it. Whatever he does to the web, he does to himself.’

He effectively used his paintings to illustrate points, beginning with Driftnet, showing a dead Pacific White-sided Dolphin and Lysan Albatross. ‘These drifting "walls of death" captured untold numbers of dolphins, whales, pelagic birds (birds of the open ocean), sharks and turtles, along with the targeted species.’ Shrimp is one of the worst offenders when it comes to bycatch, with an estimated ratio of about 6:1. This unfortunate fact led to many of us feeling too guilty to eat the shrimp at the reception later that evening. It is possible to reduce that bycatch ratio, but we would have to pay more for our shrimp. ‘Is it worth it?’, asked Mr. Bateman rhetorically, ‘Is it worth it to pay a little more for the future of our planet?’

‘You can pay now or you can pay later, but if you pay later, it’s going to cost a whole lot more. What if the land for Stanley Park had not been set aside, imagine the cost if you tried to buy Stanley Park today.’

However, no matter how dire the situation of planet Earth, Mr. Bateman doesn’t lose sleep over it, ‘It’s a sin against creation to worry about it. Do a simple three breath meditation, and then go outside and thank a tree, or even a dandelion.’
And then do something to make things better. Be a hummingbird. Mr. Bateman told us this story, popularized by Wangari Maathai. A terrible forest fire broke out one day, and all the animals fled their homes. But one hummingbird zipped over to a stream, got some water in its beak, and rushed back to the raging fire. The little hummingbird tried to douse the flames with a few drops of water, then back to the stream it flew to retrieve more water. The other animals watched in disbelief. They asked the hummingbird what it was doing – one tiny bird would not make a bit of difference. The hummingbird replied, “I'm doing the best I can.”

A fantastic grab bag of a speech: art, history, environmentalism, economics, humour and hope, even a verse of Big Yellow Taxi, you couldn’t ask for more.

Wednesday, June 22, 2011

Canadian Responsible Investment Conference: Switching to SRI

Transitioning your practice to SRI can be a painless process, according to one advisor who made the move successfully. Gail Taylor of Gail Taylor and Associates at CIBC Wood Gundy in Edmonton has a $100 million SRI book and more than 100 clients.

Speaking at the Canadian Responsible Investment Conference in Victoria this week, Taylor says she built her practice the traditional way and had worked her way up to $80 million by the early 1990s. But she was unhappy and went to a business coach for help.

The business coach told Taylor that she had to find a way to build passion into her business. Taylor decided to switch to SRI, but was worried about what her clients would think. “My clients didn't hire me to be a do-gooder,” she said. “I expected a 20% haircut.”

Instead, the opposite happened. Taylor got no push back whatsoever. “Clients told me that it was great and asked why I didn't make the move sooner. It's easy to transition to SRI and it's important work.”

Taylor says advisors who make the switch offer a unique value proposition. “The number of advisors doing SRI is still relatively small,” she says. Taylor describes herself as an “anomaly” in the CIBC office, since she's the only one offering SRI. “Our industry is at the early adapter stage. It's at the cusp of moving exponentially. My organization is going to get SRI in the future.”

Tuesday, June 21, 2011

Canadian Responsible Investment Conference: Canada’s Oil Industry and Investor Engagement

by Travis Strain

This session was very informal and structured in a Q + A format. The Facilitator was Susan Enefer of BC Investment Management Corporation and the industry representatives were Bob Walker of NEI Investments and Gordon Lambert of Suncor Engery.

The session explained, from two different angles, how shareholder engagement works and how it could be better in the future. There were 3 main points that came out of this presentation.

1) The future of corporate engagement for the oil sands from Bob’s perspective revolves around developing a measuring stick by which progress gets measured. Currently there is no easy way to judge the progress of the industry and this needs to change.

2) From Gord’s perspective, successful corporate engagement comes from the creation of “creative tension” between the two opposing parties. There is a fine line between creative tension and what he calls emotional tension. Emotional tension is detrimental and causes the two parties to become deadlocked with neither party seeing progress. This is what happens often when NGOs attempt to engage companies with media tactics.

3) In order for progress to be made on the company side, the two parties must come to the table to find solutions. They must come with the idea of having a solution oriented discussion. Communication between the two opposing parties is essential to ensure that the best possible solution is found. There also needs to be adequate conversation regarding how the energy companies will be judged on their progress and the expectations.

The final part of the session discussed a question from the floor about the people living along the Athabasca River and the problems that have arisen there. Gord used this part of the discussion as an example of how two parties can come to a complete gridlock due to extreme polarization between views. Gord stated that in order to solve this gridlock, both parties need to build trust amongst each other and come to the table to find the best solution.

Monday, June 20, 2011

Canadian Responsible Investment Conference: Green Marketing Misses the Mark

Green marketing is over, says branding expert Marc Stoiber. Speaking on the opening day of the Canadian Responsible Investment Conference in Victoria, Stoiber says it's time to move on to new methods of promotion for the green movement, including SRI, since it's clear the traditional approach has missed the mark.

Mainstream consumers have not been willing to vote with their dollars, Stoiber pointed out. “We're preaching to the choir.” The problem is that green is perceived as both expensive and suspicious, he says. A survey suggests that even Fortune 500 companies can't do green marketing correctly.

As for SRI, “it's wide but it's not deep,” Stoiber stated, noting that what started as a retail movement has become more institutional. And the belief is that large investors, such as pension funds, are investing relatively small amounts of money into SRI so they can check off a box.

Make green normal, Stoiber suggests and “lose the crunchy granola. The mainstream wants to blend in.” Make green better and make it less confusing, he adds. The terminology doesn't matter, Stoiber says, pointing to the often-confusing array of names attached to SRI, including ethical and sustainable investing. “Don't tell me you're green, call it innovation. And don't talk about green, talk about performance.”

Wednesday, June 8, 2011

Wholesalers not interested in SRI

I recently came across a news item that said HSBC will wind up the HSBC Global Climate Change Fund. The decision to close the fund was based on the small fund size and relatively small number of unitholders.

This surprised me for two reasons. First, that in the current environment there was no interest in a Climate Change fund (?!%?), and second that I, presumably a member of one of the target markets for this fund, had never heard of it.

I asked other professional members of the SIO about the fund. Across the board, no one had heard of it, been contacted by HSBC or received any marketing material. Little surprise then that it failed to attract assets.

Mainstream fund companies recognize that investors want SRI funds. They launch the funds, often with fanfare. And then they languish. Primarily, I believe, because wholesalers don’t offer them to advisors. Please note that the following comments apply to fund companies that have a few SRI products in their line up, not to companies like Meritas that specialize in SRI.

Fran Goldberg, an established financial planner in BC and long time member of the SIO, has this to say “My practice is to not see wholesalers unless I request a meeting. Every time a new one is assigned to me, they call and try to offer me the newest, best practice that will make me a better planner. They have no historical information as to who I am, tenure in the industry, etc. All they see are assets under admin. Never once have any of these newbies even mentioned SRI offerings. In fact, they never talk about SRI at all. I’m certain my experience is not unique.”

Numerous advisors chimed in to agree that they never hear about SRI unless they ask. And sometimes don’t get much information even when they do. “Recently I asked a Franklin/Templeton rep if the tradition of excluding tobacco companies at Templeton was extended to all the funds. The answer I got was something like ‘Why would you care?’....” comments Sara Gooderham, a Quebec based planner

Where does that leave the many advisors who are interested in SRI but not yet committed, who want to offer it to at least a portion of their client base, and are open to wholesalers raising the topic? Nowhere.

Margot Willmot at Family Wealth Advisors in Ottawa sums it up nicely ‘As for the mainstream companies, although they are very supportive of my non-SRI business, they are not helpful whatsoever in supporting me with the few SRI investments that they provide. I think that it is mainly due to their discomfort and lack of knowledge in SRI products. It is discouraging but I think with time, as more and more clients demand SRI products, the mainstream companies will wake up!’

Meanwhile, fund companies remain asleep at the wheel, SRI funds continue to stumble along and we keep getting told the palpable untruth that no one wants SRI.

Tuesday, June 7, 2011

SIO Conference Preview: Measuring the Transition to a Green Economy

by Tim Nash

Hazel Henderson has been advocating for a greener economy since she served as Chair of Citizens for Clean Air in 1964. A futurist at heart, she’s always been decades ahead of her time. Her 1981 book “The Politics of the Solar Age” discussed the fallacies faced by conventional economists in their shallow attempts to understand and incorporate environmental externalities into their models. She contrasted the economics of solar versus nuclear energies, and called for a paradigm shift away from a disposable culture into one that embraces renewable resources.

Hazel’s latest project is called the Green Transition Scoreboard®. The Scoreboard is an attempt to aggregate private investments in the global green economy. The latest update (Feb, 2011) pegs the figure at $2,005,048,785,088. It includes figures across five sectors: renewable energy; smart grid; efficiency and green construction; corporate R&D; and cleantech.

Several reports, including WWF’s The Energy Report and the UNEP’s Towards a Green Economy, show that our global society can shift away from a dirty fossil-fuel based economy towards a clean renewables-based one. Kick-starting this transition will take approximately $1 trillion of investments every year until 2020. Indeed, Mercer’s Climate Change Scenarios - Implications for Strategic Asset Allocation suggests that 40% of institutional money should be switched into “climate-sensitive assets” to hedge against carbon pricing risks and to profit from economic opportunities resulting from this transition. The Scorecard is designed to measure the extent of this transition, and to show investors that the bandwagon is leaving.

Hazel Henderson is a guest speaker at this year’s Social Investment Conference: Creating Value, Making a Difference in Victoria, B.C. June 20-22.

Timothy Nash has been dedicated to sustainable investing for over seven years. In 2008, he founded Strategic Sustainable Investments. He earned his M.Sc. in Strategic Leadership towards Sustainability from the Blekinge Institute of Technology (Karlskrona, Sweden) and his B.A. in Economics from the University of King’s College (Halifax, Canada). He has completed the Canadian Securities Course, and is a Senior Research Advisor to Ethical Markets Media (USA and Brazil). He leads the research team for the Green Transition Scoreboard®, which has found more than $2 trillion of private investments flowing into the global green economy. He currently lives in Toronto, Canada and is often found at the Centre for Social Innovation.

Friday, June 3, 2011

NEI calls for “effective and credible” oil sands monitoring

NEI Investments, owner of Ethical Funds, has released its submission to the Alberta Environmental Monitoring Panel, a team of experts asked to recommend principles and objectives for a world-class environmental monitoring system, beginning with the oil sands region.

“Awareness has been increasing among investment institutions that the environmental and social impacts of oil sands development could pose risks to the long-term value of the companies involved,” NEI says in its submission letter. “Establishing an effective and credible monitoring system is a key public policy intervention that can help to mitigate these risks and create greater certainty for investors.”

“A world-class environmental monitoring system should produce credible information, backed by a credible process. It is imperative that all stakeholders should have confidence in the quality of the data being gathered, and confidence in the body responsible for gathering it.”

Later this month, the panel will issue its initial report and recommendations.

The NEI comments were submitted on behalf of companies representing over $1.2 trillion in assets under managements, including Batirente, the BC Investment Management Corporation, Calvert Investments, Meritas and Vancity.

A copy of NEI’s submission letter is available here.