Socially Responsible Investing (SRI): What is it?

What is SRI?

Most simply, socially responsible investments (SRI) integrate environmental, social, and governance factors (ESG) into the management and selection process for investments.

Roots of Socially Responsible Investing

Socially responsible investing (SRI) has its deepest roots in the huge social changes that began in the 1960s. Along with the beginnings of the environmental movement spurred by Rachel Carson’s Silent Spring, there were huge changes in civil rights, women’s rights, and organized labour. It took some time for these changes to begin having an effect on investments.

In Canada, the first direct action on directly influencing investment for social purposes was the Taskforce on the Churches and Corporate Responsibility (TCCR). The TCCR formed in 1975 to address:

“Canadian corporations, the Canadian government and international institutions on issues of corporate social and environmental responsibility, and related issues of corporate governance and shareholder rights. It also assisted the churches in examining their own investment policies and practices.” - Shareholder Association for Research & Education

One of their earliest campaigns involved trying to use their influence to end the support of South African apartheid by Canadian companies. After initial refusals to even discuss South African loans, RBC and TD became the first in Canada to halt new loans and renewals, followed by many other banks.

The TCCR is also intimately tied to the history of shareholder resolutions in Canada, since:

“In 1982, TCCR filed what is believed to be the first minority shareholder proposal in Canada. It went on to challenge Alcan, Massey Ferguson, Falconbridge and other Canadian companies operating in South Africa. TCCR won numerous concessions, including the historic sale by Alcan of its interest in Hulett Aluminum in 1986.” -Responsible Investment Association of Canada

The TCCR came together in 2001 with a number of other church coalitions in 2001 to form KAIROS.

 

Results

These efforts showed that a concerted effort by a group can help steer the direction of a company. This sort of mandate was taken up by the first socially responsible mutual fund, the Ethical Growth Fund. The revolutionary change here is smaller investors previously had great difficulty finding investments that shared their values. Previously this degree of selection and influence was only available to large investors such as pension funds and endowments such as the church funds led by the TCCR. There are now a broad range of socially responsible funds available in the Canadian marketplace, though the number of advisors with deep knowledge is still limited.

In fact, shareholder activism powered by the sizeable shares in companies held by responsible mutual funds continues the work began by the TCCR though with a much broader toolkit including shareholder resolutions, avoiding certain industries, and applying screens to ensure companies that the funds choose for investments have solid environmental, social, and governance practices (ESG).

General Landscape

The ESG screens in particular have also been recognized as doing far more than aligning investments with the attitudes and values of ethically-minded investors. They help ensure that we invest in companies well-positioned to adapt to climate change, environmental disasters, water and other resources issues, and other issues with global impacts. They have also been having positive impact on client’s returns. This has been confirmed in a number of studies. One performed in 2012 by DB Climate Advisors found "superior risk-adjusted returns for investors" at the level of the stocks held in ESG funds.

 

From the simpler beginnings listed above, the responsible investing world now includes a broad array of investing mandates including ethical investing, socially responsible investing, sustainable investing, green investing, community investing, mission-based investing, and impact investing. These are offered in investment vehicles including mutual funds and segregated funds, placing a selection of vehicles firmly within reach of the average Canadian investor.

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