And the winner is….

Last night the Canadian Investment Awards Gala took place at the Fairmont Royal York in Toronto. The awards recognize leading investment products and firms who demonstrate a commitment to excellence within the Canadian financial services industry. The investment categories have grown over time, and in addition to the standard fund types and the SRI award, a set of awards for hedge funds was added this year.

The Socially Responsible Investment Fund Award was won by the Inhance Monthly Income Fund. Steve MacInnes, the Chief Investment Officer at Inhance, was on hand to accept the award. “It’s a compliment to myself and the team we have at Inhance. The Monthly Income Fund is a fund for the times we went through. It’s very well balanced, no crazy bets and diversified across all yield asset classes. It outperformed it’s balanced fund peer group. We had a shot at winning the whole category”

The runner up was the Ethical Balanced Fund. Both funds are in the top quartile based on Globefund rankings of 3 year performance of the Canadian Equity Balanced Peer Group. Perhaps we can now put an end to the pervasive myth of SRI underperformance.

Glorianne Stromberg was the winner of this year’s Career Achievement Award. This award is well deserved, and a courageous choice given the mutual fund industry’s reluctant acceptance of many of her much needed reforms.

The second annual Green Company Award for Environmental Leadership went to TD Bank. Peter Love, the former Chief Energy Conservation Office with the Ontario Power Authority, when presenting the award, asked a question that goes to the heart of SRI, ‘What good is prosperity if it cannot be sustained?”.

Unfortunately, Thomas Dyck in his acceptance speech spoke about the Great Canadian Shoreline Cleanup, a wonderful initiative, but neglected to mention the impact of TD’s Sustainable Investing Policy introduced earlier this year which now takes ESG factors into consideration when managing their 53 billion dollar mutual fund portfolio.

The CIA Gala is itself committed to going green. The event was powered with renewable energy by Bullfrog Power, and the program was printed by Informco on ‘100% recycled paper with no new trees harmed, using vegetable based inks and Environment 14001 certified processes.’ Hmm, looks like the broader investment community is finally catching up to us!

Small steps for shareholder action

Most Canadian mutual funds still strongly support management on shareholder resolutions, though there are signs of some movement away from that trend, according to a report by the Shareholder Association for Research and Education (SHARE) and Fund Votes.

For example, the second annual Proxy Voting by Canadian Mutual Funds report notes that Canadian mutual funds are more likely to oppose the election of directors put forward by corporate management than in previous years. And note the success of this year's "Say on Pay" campaign (not included in the report), which will allow shareholders of Canada's big banks an advisory vote on executive compensation starting next year.

“Canadians depend on mutual fund companies to protect their retirement savings and studies have shown repeatedly that careful proxy voting adds value and manages risk for investors,” says SHARE’s Laura O’Neill. “At this time of battered financial markets and depressed shareholder value, it is a positive sign that more funds are challenging management’s hold on the ballot.”

The report found that three mutual fund companies stood out from the crowd. “Among their peers, Inhance Asset Management, Meritas Mutual Funds, and Northwest & Ethical Funds, were significantly more likely to vote against management,” the report notes. “The three companies are known for integrating environmental, social and governance factors into their investment decisions.” Inhance, Meritas and Northwest & Ethical voted in favour of shareholder proposals on at least 40% of all ballots and each also withheld support from management on at least one in five resolutions.

However, those three companies are the exceptions. Canadian mutual funds supported management about 90% of the time. Eighteen of 21 fund families rejected more than 80% of the shareholder proposals they voted on.

And the report turned out a few anomalies of interest to SRI investors, especially those who are invested in SRI products from fund companies that are not SRI-exclusive or SRI specialists. For instance, the proxy voting records of SRI funds sold by diversified fund companies are likely to be the same. “We looked for evidence that SRI funds would report voting in favour of corporate social responsibility proposals more heavily than non-SRI funds in the same family. With notable exceptions, we found that this was not the case.”

“When you invest in a fund from an SRI family, you can count on very progressive proxy voting,” O’Neill said. “We found that in most cases, an SRI product managed within a non-SRI fund family votes in the same management-friendly way for all of its funds.”

Canadian fund companies have been required to publicly disclose their proxy voting records since 2006. The SHARE/Fund Votes report is available here.

Canadian SRI funds closely monitoring Barrick

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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