Socially Responsible Investment in Canada 101

By: Meirav Even-Har, Toronto

This June, SRI+20 will take place in Montreal to examine future opportunities and challenges of Socially Responsible Investment (SRI) in Canada. This year's theme will build on the momentum leading up to the Earth Summit this June, also known as Rio+20. This past April, CERES held its own annual conference titled Igniting Innovation, Scaling Sustainability, which included several discussions on responsible investment. While socially responsible investment has grown, it is still not widespread among the investment community, fully understood by companies, or even known to many individual investors.

What is Socially Responsible Investment?

The Social Investment Organization defines SRI as "...the integration of environmental, social and governance factors in the selection and management of investments."

Socially responsible investment has two categories: "Core SRI" and "Broad SRI." Core SRI refers to the selection of companies to invest in based on specific values, such as: tobacco, alcohol, environmental performance, human rights violations, community involvement, and employee relations. Broad SRI refers to financial analysis and investment decisions that include environmental, social and governance (ESG) factors. It also encompasses shareholder activism, specifically the through filing of resolutions bring about positive change.

Why does SRI matter?

In an interview with 3BL Media at the 2012 CERES Conference, Michael Jantzi, CEO of Sustainalytics said "Investors have to integrate social environmental governance factors as part of the process if they want to make fully informed and better decisions." Simply put, ESG factors integrated into investment decisions allow for a wider lens by which to see into the health and future prosperity of a given company. Sustainalytics partnered with CERES in a report titled: The Road to 2020: Corporate Progress on the Ceres Roadmap for Sustainability. The report assesses 600 publicly traded US companies on issues of governance, stakeholder engagement, disclosure and performance.

Sustainalytics is a major presence in the Canadian SRI landscape. Ethical Funds has also been at the forefront of corporate engagement and shareholder activism in Canada. Now in its 25th year, Ethical Funds provides investment services and engages companies through its ownership of shares on environmental, social and governance issues.

What does shareholder activism look like?

For Ethical Funds, engaging with companies begins with dialogue on specific issues of concern. For example, Enbridge was engaged on its Northern Gateway pipeline project since 2005. Specifically, strengthening the consultation process with First Nations communities located along the proposed pipeline route.

If the first step does not yield results, a shareholder resolution is filed for voting at a company's annual general meeting. This occurred in 2007 as a response to concerns over safety and compensation issues that rose a year earlier with CN Rail. Two shareholder proposals were filed. The first requested the company to report on its plans to address inadequate safety performance. The second resolution requested that executive compensation be evaluated based on ESG objectives and safety performance targets.

Most often companies agree to engage with Ethical Funds on requested changes thereby bringing about a resolution withdrawal. However, if a resolution does go ahead, then a proxy-voting alert is issued with explanation for the resolution, in order to encourage other shareholders to support it.

While shareholder activism has been on the rise in both Canada and the U.S., the Canadian landscape is more attractive. With 5% holdings, Canadian shareholders are able to requisition meetings, nominate or rid of directors more easily than in the U.S. Whether a more activist landscape on the whole creates positive or negative implications to business remains to be seen. The growth of SRI and corporate engagement by investors remains an important trend to watch.



SIO: Canadian Responsible Investment Conference, SIO +20

SIO: Fact Sheet #1: What is Socially Responsible Investment (SRI)?

SIO: Fact Sheet #1: What is Socially Responsible Investment (SRI)?

3BL Media: Take a Closer Look at the World of Corporate Responsibility & Sustainability, CERES Conference 2012

CERES: The Road to 2020: Corporate Progress on the Ceres Roadmap for Sustainability

Ethical Funds: Enbridge

Ethical Funds: CN Rail

The Globe and Mail, BNN Video: How Canada makes it easier for shareholder activists

Image: Reuters (Toronto) By bgilliard (Flickr via Creative Commons)