Article by Deb Abbey,
CEO of the Responsible Investment Association (RIA)
In 1973, the YWCA of Canada and the churches published Investment in Oppression, a report that showed how foreign investment in South Africa supported apartheid. Two years later, the churches founded the Taskforce on the Churches and Corporate Responsibility (TCCR) to use church influence to make Canadian companies more responsible.
International attention increasingly focused on apartheid and responsible investors refused to invest in companies that did business in South Africa and sponsored shareholder resolutions urging companies to withdraw from the country. Canada’s responsible investors were front and center.
TCCR used the power of investment to leverage the pension and endowment funds of the churches to bring about disinvestment from South Africa.
Progress was slow, but TCCR did win some battles. Initially, Canadian banks refused to discuss their South African loans. Then in 1978, the Royal Bank of Canada halted loans that were deemed to be supportive of apartheid, and in 1980, the Toronto Dominion Bank became the first Canadian bank to discontinue all new loans and the renewal of existing loans in South Africa. Other banks followed suit.
Shareholder activism or corporate engagement has subsequently become commonplace. Canadian mutual funds and coalitions of shareholders have continued the role once played by TCCR and work with churches, unions, and other responsible investors to engage with companies, and where necessary, sponsor shareholder resolutions on a variety of issues, including climate change, executive compensation, and supply chain management.
Canadian Responsible Investment (RI) mutual funds have been leaders in bringing forward proposals to press companies to consider the environmental, social and financial risks associated with issues like oil sands production or supply chain management.
The Evolution of Responsible Investment
A decade after TCCR was launched, the first RI mutual fund, the Ethical Growth Fund, was launched in Vancouver. Our latest mutual fund quarterly report lists more than one hundred funds in Canada today.
Our most recent asset trends survey shows that Responsible Investment assets in Canada have grown from $600 billion in 2012 to over $1 trillion in 2014. Most of that growth has come from the pension sector but we’ve also had solid growth on the retail side. One of the drivers of that growth in RI is the recognition that issues such as climate change, aboriginal relations, executive compensation and supply change management can affect the valuation of individual securities in an investment portfolio.
Recently, some Canadian foundations and universities have chosen to divest of fossil fuel companies but since the oil and gas sector comprises roughly 25 percent of the TMX [our national stock exchange], it has been a challenge. A number of fossil fuel free and low carbon Canadian mutual funds and pooled funds have emerged in recent years. Most have focused on global portfolios.
Hot Button Issues for Investors
• Climate Change
Greenhouse gas emissions are a key theme in Canada. Natural Resources Canada predicts that climate change will decimate Arctic sea ice, increase sea levels on both coasts, and exacerbate droughts, floods and heat waves. These changes will result in acute stress on our farms, forests and wildlife.
Responsible investors are seeking investment options that reduce the impact of climate change and provide competitive financial returns. They’re concerned about stranded assets and have been engaged in dialogue with oil and gas companies about their plans to mitigate climate risk. They want to know how fossil fuel companies are managing the transition to a low carbon economy.
The provinces of Ontario and Quebec have just signed an agreement with California to cap greenhouse gas emissions and create a carbon market. Canadian investors are paying close attention to the regulatory environment and pressing companies to support a price on carbon.
• Say on Pay
Executive compensation is another key focus for investors. Unlike the U.S. where shareholder votes on executive compensation or ‘Say on Pay’ are mandatory, in Canada this is a voluntary initiative. Shareholder engagement on this issue has been an important driver of ‘Say on Pay’ policies. By 2014, more than 150 companies across a number of sectors had adopted voluntary measures.
• Supply Chain
A number of Canadian apparel companies were operating in Bangladesh at the time of the Rana Plaza factory collapse. Canadian shareholders concerned about supply chain risk have been engaging with these companies to improve factory safety in Bangladesh. Some Canadian companies have stepped up and signed on to international inspection and remediation initiatives to improve working conditions and factory safety while others have been laggards. Two years later, the work continues.
Disclosure and Transparency
Regulatory reporting standards in Canada do not even begin to address the level of information that investors need to make prudent decisions vis-à-vis ESG (Enviromental, Social and Governance) risk. The Canadian government is currently reviewing the Canada Business Corporations Act (CBCA), the basic legislation governing corporations. Their review has provided an opportunity for many of our members to provide input. The Responsible Investment Association’s submission recommended that the CBCA require large companies to report on their ESG performance using standardized guidelines such as Global Reporting Initiative (GRI). Increasing the scope of the Act could dramatically change the way that Canadian companies report on material ESG factors.
Currently, most company information is obtained from ESG research providers such as Sustainalytics or MSCI or through direct dialogue initiated by investors. Recently, though, we’ve seen more companies reaching out to engage with investors about ESG issues, particularly during proxy voting season.
Canadian securities laws are not national but Ontario typically leads the way. The provincial government recently passed legislation that requires pension plans to disclose whether ESG factors are incorporated into their plan’s investment policies and procedures and, if so, how. The adoption of this legislation is perceived as a watershed moment for responsible investment in Canada.
Ontario has also taken action to increase the number of women in high-ranking positions in the workforce by approving securities law rule amendments that will encourage greater representation of women on corporate boards and in senior management teams.
State of the Nation
According to an NEI Investments survey done in 2014, 92 percent of Canadians say that it’s important to choose investment products that are consistent with their values. Yet few advisors offer RI products and services. We’ve addressed that gap by increasing our educational programs for advisors and other RI professionals. In 2014, we partnered with the PRI Academy to offer their online courses to RI professionals in Canada.
We’ve combined those educational opportunities with RI certification to help advisors differentiate their business practices and highlight their expertise. We’ll be extending our certification program to mutual fund licensed advisors in banks and credit unions across the country. And we’ll be launching a Canadian-focused RI course this fall.
In 2014, we introduced Responsible Investment week, a week dedicated to education and awareness about responsible investment in Canada. I believe that RI is becoming mainstream in Canada.
Article by Deb Abbey, CEO of the Responsible Investment Association (www.riacanada.ca )
Deb was the founder, CEO and Portfolio Manager of the first investment management firm in Canada to focus exclusively on responsible investment. Her company, Real Assets, was eventually acquired by IA Clarington.
Deb is the co-author, with Michael Jantzi, of ‘The 50 Best Ethical Stocks for Canadians – 2001 Edition’ and the author of ‘Global Profit and Global Justice: Using Your Money to Change the World’ – 2004. She is a financial columnist for Investment Executive magazine.
Deb is an Honourary Director of the B.C. Sustainable Energy Association and sits on the board of the Forest Ethics Solutions Society. Deb was Vice-President of the Board of Canadian Business for Social Responsibility from 1997 – 2001.
