Investing With an Eye on Ethics

Brandon Sun, February 9, 2008 - David McConkey

This time of year, many of us are thinking more about money.

Some are considering investing more in their RRSPs before this year’s February 29 deadline. Some are worrying about their investments in the current volatile markets. Others are agonizing over credit card bills from Christmas shopping.

In any case, more people are choosing to make their investing and shopping more “ethical” or “socially responsible.” (Caution / disclosure: this column is not meant to be investment advice; I personally own shares of some of the companies mentioned; you are now entering what I call an AFZ, or acronym filled zone.)

Ethical investing got a big boost in Canada in the 1980s. A number of mutual funds were created that used ethical “screens” to choose the companies they invested in. They often avoided businesses that were involved with gambling, tobacco, weapons, uranium mining, and nuclear power.

Such concerns are, of course, subjective. Gambling, for instance. Is it morally wrong and socially destructive? A harmless diversion? A necessary part of aboriginal and downtown development? (Brandon voters, voice your opinion.)

However these concerns are decided, however, such ethical considerations are playing a bigger role.

A major force for socially responsible investing (SRI) in Canada is the Ethical Funds Company. As well as owning shares, it is in “active dialogue” with the corporations in its portfolios. Ethical Funds uses its power as a shareholder to apply pressure on issues such as climate change, biodiversity, and human rights.

One of its mutual funds is the Ethical Canadian Index Fund. This fund is based on the Ethical Canadian Index, which consists of companies that meet certain environmental, social, and governance (ESG) criteria. Of the top Canadian companies, 218 are included. Another 47 companies are screened out as not acceptable.

A similar index is the Jantzi Social Index, which consists of 60 Canadian companies identified by the Jantzi Research Company. The Meritas Jantzi Social Index Fund is a mutual fund based on this index. A recently created exchange traded fund (ETF) uses the same Index.

How does being socially responsible rate as a straight investment? A scanning of the Globe and Mail’s list of 6,000 Canadian mutual funds leaves me with the conclusion that ethical investors might have sacrificed some monetary return.

None of the Ethical Funds, for example, achieved the “5-Star” rating for being in the top 10% in its category. (Past performance, however, is no guarantee for the future.)

On the other hand, both the Ethical Canadian Index Fund and the Meritas Jantzi Social Index Fund have tracked the TSX Composite Index well over the past few years. Both funds have a Globe “4-Star” rating.

Ethical investors can also invest in the specific companies that have been identified by organizations like Ethical Funds or Jantzi Research. Some examples of companies that meet their criteria: Bank of Nova Scotia, Canadian Natural Resources, Encana, Nexen, Petro-Canada, Research in Motion, Royal Bank, Shoppers Drug Mart, and Potash Corporation of Saskatchewan.

Ethical concerns can be applied to not only investing, but also shopping. For example, a recent issue of Maclean’s magazine used Jantzi Research findings to rate many familiar companies for corporate social responsibility (CSR).

Here are some examples of companies and their ratings: The Gap scored an “A,” Staples an “A-,“ Canadian Tire (including subsidiary Mark’s Work Wearhouse) a “B+,” Home Depot a “B,” Sears Canada a “B,’ Rona a “B-,” and Wal-Mart a “C+.”

Most of the research has been done with large, publicly-traded corporations, like those listed above. Shoppers, however, should not forget other ethical alternatives that merit support. These could include: privately-owned companies – especially small local ones; co-operatives and credit unions; and non-profit organizations.

An ethical investor and shopper might own shares in the Royal Bank or Bank of Nova Scotia in their RRSP, and personally bank at a local credit union. Patronize ethical large corporations, as well as non-profit organizations and privately-owned neighbourhood stores.

Participate in Canada’s booming energy sector by owing shares in Petro-Canada and Encana, and buy their own gasoline from a co-op in their community.

Ethical shoppers might also note Fair Trade Manitoba’s “One-Month Challenge” (OMC), which starts February 14. Those joining pledge to partake in fair trade coffee, tea, and chocolate for 30 days.

Preserve your principles while watching your principal? Promote your values while you shop for good value?

Look for ethical concerns to be an increasing factor in the marketplace.