Green investing - why bother?

Green investing - why bother?

By Jennifer and Andrea Kirby,
Kirby Financial Group  www.kirbyfinancialgroup.com

Increasingly, Canadians are deciding that they want to invest in a way that is aligned with their social conscience. What that conscience tells them differs from person to person and from fund company to fund company.

From there, individual investors, the media, and critics wonder aloud whether there is any point at all to selecting funds that have used various screens to select companies they believe are making a positive change.

The broad category of “Socially Responsible Investing” captures a wide variety of funds. SRI is defined as the integration of people’s social, environmental, and ethical values with their investment decisions.

It is generally agreed upon that there are three strategies that produce a positive “triple bottom line”: screening, shareholder action, and investment in the community.

Screening
The first bone of contention among SRI advocates is the screening process used to select or reject certain companies as part of a fund portfolio. Positive screens might be comprised of aboriginal concerns and relations, animal testing, cultural and gender diversity, environmental impact, or international human rights.

Negative screens can include alcohol and tobacco production, gambling, nuclear power, military contracting, or pornography.

Naturally, different investors look at the importance of these positive and negative screens differently. Some people may see pornography as harmless but consider a wind energy company running roughshod over local farmers as grounds to dismiss that company as being “unethical”.

In working with an advisor to include SRI criteria in your investment decisions, it is important that you are clear with regards to the criteria you would use to select or deselect certain companies. Meritas Mutual Funds, for example, has a 0% tolerance for companies engaged in activities defined by its negative screens (www.meritas.ca).

Other fund companies might allow a company to earn 10 - 15% of its profits from, say, military contracting before eliminating them from their portfolio.

Shareholder Action
For some SRI advocates, shareholder activism represents the most important aspect of the social change that SRI offers. While not every fund company has a mandate for shareholder action on dimensions of social, environmental, and ethical values, it is an important way in which SRI funds are able to impact the way companies are doing business.

Shareholder action means that the fund company, on behalf of investors, opens a dialogue with management to increase its understanding of social and environmental issues, vote in line with standards set out by the fund mandate, and work with companies that indicate a willingness to change. At times, SRI funds will divest themselves of company shares when no actions or plans are underway.

This pressure from shareholders can be significant and encourage companies to make decisions that take into account social and environmental considerations.

This strategy is not universal among fund managers. In instances where an SRI fund is only one offering in a fund company’s list of investment options, one should question whether the voice of socially responsible investors is being heard at shareholder meetings.

For example, if a bank lists one or two SRI options in its thirty fund offerings, how likely is it that SRI concerns would be voiced at shareholder meetings or taken into consideration when it comes down to a vote?

If shareholder activism is important to you as an investor, ensure that the fund company as a whole holds a real commitment to the SRI cause - look for voting intentions listed on the company website prior to meetings or reports on the changes sought through negotiations with corporate management and/or voting.

Investment in the community
Finally, some SRI fund companies hold a mandate to contribute to local communities. These investments would normally be designed to provide economic growth and opportunity in areas that might not normally have access to capital.

Not surprisingly, SRI funds with this mandate insist that these investments do not have a material effect on return to the investor.

Certainly, it is “buyer beware” in the realm of socially responsible investing. If your advisor is not willing to open a dialogue with regards to your investment values, you should find someone who is. The Social Investment Organization lists advisors across Canada who have a demonstrated commitment to these funds.

About Kirby Financial Group
Jennifer Kirby is a Certified Financial Planner, Chartered Life Underwriter and Registered Health Underwriter with a passion for making sense out of complex financial products. Jennifer has been working in the financial planning industry since 1995 and has a proven track record for helping clients clarify their personal and financial objectives.

Andrea Kirby has and MBA from Simon Fraser University and joined Kirby Financial Group in 2007. Andrea is dedicated to providing clients with candid, up-front advice and excellent customer service. She has been a member of the Social Investment Organization since 2008.

Please contact us anytime if we can help you with creating a financial plan.