Ethical investing offers opportunities for Canadian advisers

Mon Dec 17, 2012 4:09pm EST
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TORONTO (Reuters) - While Canadian financial advisers are struggling to lure investors, in part because of lackluster returns, those promoting "socially responsible investing" say they've got an edge on the competition as shareholder activism heats up.

The din of the Occupy Wall Street movement has faded, but the controversy over pipelines, oil sands and climate change remain hot topics in Canada, where C$530 billion ($536 billion) - or nearly a fifth - of investable assets have a "socially responsible" earmark.

"It is definitely a good time to be in socially responsible investing," said Sterling Rempel, a financial planner at Future Values in Calgary, a city where the energy industry and environmentalists go head to head on a daily basis.

While ethical investment once meant cutting tobacco companies and arms producers from portfolios, investors are now turning to self-described socially responsible investing (SRI) funds to influence companies on anything from executive pay to climate change and labor issues.

Such funds often buy shares in industries as diverse as banking and oil and then lobby to force change from within as activist shareholders. The SRI industry takes credit for forcing so-called "say on pay" votes on executive compensation at 100 companies in Canada, power that was unheard of five years ago.

"A key part of our strategy ... is owning imperfect companies and then sitting down with the management of those companies, and engaging and encouraging them to be leaders within their industry," said Gary Hawton, president of the Social Investment Organization in Canada, a membership-based group that includes banks, fund companies, financial advisors and others interested in socially responsible investment.

For committed SRI advisers and investors, true SRI funds must screen out the worst industries and companies who refuse to engage - and engage fully with those who will. Simply buying shares in green companies and waiting for returns is not enough.

That standard means SRI products remain limited, and even then, skepticism persists.

"Ethical funds are more a feel-good approach than (something that is) really affecting a significant change," said University of British Columbia business professor Werner Antweiler, adding that funds have to hold a very big stake in a company to really get a voice in the boardroom.   Continued...