Strong Returns
But does investing in a responsible manner mean sacrificing high returns? Not necessarily. “There is growing evidence that responsible investment strategies will meet and often exceed targeted returns,” says Jordan Berger, head of responsible investing, with Mercer. The California Public Employees’ Retirement System (CalPERS), for example, chooses certain companies each year to engage with and focus on reforming their governance practices. A 2006 study by the University of California at Davis analyzed the gains of these actions linked to the 115 companies that CalPERS listed from 1992 to 2005. The research indicated short-term benefits of US$3.1 billion for investors over a 14-year period.
From Jan. 1, 2000 to Dec. 30, 2007, the Jantzi Social Index (a socially screened common stock index using ESG criteria) had a cumulative return of 91.12%, compared to the S&P/TSX Composite Index at 89.63% and the S&P/TSX 60 at 87.08%. Berger also suggests that as energy issues become more important due to the rising costs of raw resources, this will have a direct impact on financial performance. He points to the clean technology sector as another emerging investment area. “A lot of pension plans are specifically targeting clean technology as investments because of the growth potential.”
Although it’s only been three months since Western implemented its Socially Responsible Global Equity Fund, there’s certainly been interest and uptake by members. Koza says they have invested about $3 million in the fund to date, out of $1.2 billion total assets under management for the retirement plans. “We set it up as an independent fund option, so members can choose to go in,” she says. “We weren’t forcing any members into it.” The fund also serves the needs of certain ethnic and religious employee groups. “One particular sect of religious beliefs was not permitted to earn interest income,” says Koza. “Further, they couldn’t endorse all of the investments that had been selected for equity portfolios. We’ve found that this SRI fund has met that need for that particular group of our employee base.”
And financial returns are not the only reward. “What we can observe is the improvement on companies’ governance and the way they handle the ESG issues. They are taking that far more seriously than, maybe, 10 years ago. They are listening to us,” says Provost. “In that, we see return.” Striking a balance between ESG policies and high returns, pension funds can ensure they’re doing something for the greater good.
Future Focus
Down the line, BCIMC intends to focus on shareholder accountability, climate change and human rights. “We’ve looked recently at portfolio companies with operations in conflicted areas of the world—areas like Southeast Asia—so we’ll continue with that review and that engagement, and we’ll be bringing that risk analysis into our decision- making a lot more,” says Enefer. “Our engagement with companies on shareholder rights is well advanced but we’ve generally addressed [human rights] reactively, through proxy voting, if an issue appeared on a ballot. So I think the mindset will switch now.” The Caisse plans to enact more group actions with other institutional investors. And Western is taking it one step at a time. “If we begin to see an awful lot of members with 100% of their portfolios in this fund, we’d look at further diversifying it, maybe with another manager or with different assets,” says Koza.
But SRI takes time and patience. “While the industry might be trying to say it’s here and it’s the thing to do, don’t assume that’s a slam dunk with your board,” Koza says. “We don’t all know that it’s the right thing to do, and I’m not sure there is that consensus yet.” And it won’t happen overnight. “You have to go step by step and make sure that every step you implement is well understood and well done,” says Provost. “It’s a progressive thing. You can’t change the world in one day.”
Brooke Smith is associate editor of Benefits Canada. brooke.smith@rci.rogers.com
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© Copyright 2008 Rogers Publishing Ltd. This article first appeared in the July 2008 edition of BENEFITS CANADA magazine.
