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Faith and money talk: MC Canada helps lead the way

   
 


Bryan Grom, President of Ardent Retirement Group Ltd. and Dan Carpick, Regional Director, Central Region, Group Retirement Services

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February 5, 2008
-Deborah Froese

WINNIPEG, Manitoba — Faith-guided investments can spur change at corporate levels.

When Mennonite Church Canada (MC Canada) asked their pension consultant, Ardent Retirement Group Ltd., to find Socially Responsible Investment (SRI) options for its pension plan holders, Great West Life (GWL) created a new suite of SRI funds for investors, taking church values to the wider marketplace.

The series of events leading to this development began in 2001 with a survey of MC Canada’s pension plan members. Employees overwhelmingly endorsed the use of investment screens to ensure their retirement savings were not supporting companies with questionable environmental, social or governance practices (ESG). Executive Secretary of Support Services, Pam Peters-Pries, responded by asking Bryan Grom, the President of Ardent, to find an investment provider who would accommodate MC Canada’s specific needs.

“It wasn’t easy,” says Grom. SRI options involve equities or stocks – making them high-risk investments – but MC Canada pension plan members are conservative investors. In 2001, none of the fully administered retirement plan providers such as Great West Life, Sunlife, Desjardin or even the incumbent provider, Manulife, offered SRI funds that would complement conservative risk tolerance levels. Grom, however, was intrigued by the possibility of generating interest in such a fund and with a letter from Peters-Pries outlining MC Canada’s desires, sent out a Request for Proposals to a myriad of group plan providers.

In that request, both Peters-Pries and Grom expressed particular interest in Meritas Financial Inc., an SRI company rooted in Mennonite traditions and owned by three Mennonite institutions; Mennonite Savings and Credit Union in the Kitchener/Waterloo area, the Mennonite Foundation in Winnipeg, and Mennonite Mutual Aid in Goshen, Indiana. With stringent screening mechanisms in place through Jantzi Research, a Canadian social investment analysis company, and zero tolerance for certain investments such as military production, alcohol, tobacco, gaming, pornography and nuclear power, Meritas was unique. “These aspects of Meritas aligned very closely with what we, as a church, thought would be important,” Peters-Pries reflects.

Grom presented MC Canada’s request to a wide variety of pension plan providers. Even though the MC Canada pension plan brought a substantial sum of money to the table – over $20 million – only Great West Life’s Group Retirement Services (GRS) responded favorably to the query.

“It was clear there was an opportunity to do something different and creative,” says Dan Carpick, Regional Director of GRS. He investigated Meritas, liked what he discovered and presented MC Canada’s request to the senior management of Great West Life. With their approval, GRS launched their Socially Responsible Asset Allocation Fund (SRMER) in 2003.

Grom had other faith-based clients whom he knew would be interested in SRMER . He brought the pension plans of Mennonite Central Committee and Canadian Mennonite University to GRS for investment in SRMER, along with several others.


John Smith, President of Great West Life Investment Management Ltd.

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But for GWL to offer SRI funds to the broader marketplace, it had to respond beyond its group pension administration division. John Smith, the President of Great West Life’s Investment Management division (GWLIM, pronounced “gwillim”) was intrigued by the response GRS received to SRMER. When Grom brought Mennonite Foundation to him as a potential client, Smith was inspired to think big. “Why would we just do one fund or two funds? Why wouldn’t we come up with a suite of funds that is not [currently] available in Canada to anyone?” GWLIM is different from GRS in that it manages funds for both corporate and individual investors, but it does not administer pension plans.

In 2006, GWILM formed a partnership with Meritas to offer a full suite of SRI options to corporate and retail clients. Smith approached Jantzi Research about screening those funds for ESG concerns so that they could be classified as SRI choices. “It went like this,” Smith throws his hands in the air. “Boom!”

“This is the first suite of funds that covers all asset classes that the investor would need or want and we couldn’t do it without the support of Mennonite Church Canada,” he said.

Smith concedes that GWILM would not have become involved in this fund development without foreseeable profitability. “We want to see this thing grow to a billion dollars.” He pointed out that a number of studies on the potential of SRI have been conducted. “The bottom line is that between 80 and 85% of Canadians feel that their assets should be invested with some kind of socially responsible investing in mind,” he said. “From a statistical point of view, if you’re over 60[%] you’ve got a great number, but when you’re in the 80s, that is a very compelling number.”

As of Nov. 2007, almost 20% of all Canadian funds under management – more than $500 billion – are administered according to SRI guidelines. “We’re at a big number at 20%, but that’s because the Canadian Pension Plan [CPP] and the Quebec Credit Union [Caisse de dépôp] are involved,” Smith says.

According to Smith, CPP and the Quebec Credit Union joined the SRI movement after a 2006 UN panel of about 80 investment professionals from around the world devised a list of principles for Socially Responsible Investing. “That heightened the awareness of a lot of organizations,” Smith says.

The CPP Investment Board’s Policy on Responsible Investing acknowledges the first duty of the board is to maximize investment returns without undue risk but it also recognizes that ESG factors can have a positive influence on long-term corporate performance. It emphasizes disclosure as a key factor in determining risk and return and the potential impact of ESG factors on performance (www.mennonitechurch.ca/tiny/568).

“Five years ago they [CPP] certainly weren’t saying things like that,” says Gary Hawton, CEO of Meritas.

Hawton points out that SRI is as much about investing in companies that are financially viable as it is about embracing a broad set of social and environmental screens. SRI has the potential to initiate environmental, social and governance changes at a corporate level because it offers investors leverage to challenge poor corporate practices. Hawton refers to environmental issues as an example. “More and more organizations are recognizing that you can’t say that an environmental issue is not a financial issue,” he says. “Carbon trades [in the marketplace]. Environmental issues do have financial impact.”

Media has influence as well, Hawton notes. If media reveals that a manufacturer is using child labor, the stock price falls and its reputation is tarnished. It behooves companies to respect ESG standards.

Smith, Carpick, Hawton and Grom all agree that there are currently more institutions and endowment funds choosing SRI than there are individuals – but they say that will soon change.

Michael Jantzi, the President and founder of Jantzi Research, already sees an increasing number of individual Canadians investing in socially responsible mutual funds. “The retail market has begun to take notice,” he says. Referring to his own activities in late 2007, he says that the retail market “intensified in a meaningful way this fall.”

“Great West Life has taken the first important step toward encouraging ESG conscientiousness in the corporate world by making SRI available to the general public,” says Peters-Pries. She believes the church’s responsibility goes beyond SRI investing however. “The next step is to employ shareholder advocacy for ESG.”

Since Meritas found a place on Great West Life’s shelf of investments, investors have taken notice. “We are currently the fourth largest retail SRI fund manager in Canada…and closing in on third and second very quickly,” Hawton writes in an email exchange.

The language of money is a powerful tool for corporate persuasion.

“When we were first introduced to Meritas,” says Grom, “they had $10 to $15 million under management. Now they are at $150 and they’re probably going to break the $200 million mark this year [2007].”

“I think things happen because they should,” muses Smith. “But they happen because people get together too. We wouldn’t be here talking today if Bryan wasn’t here. He was the catalyst that got us into this room.”

Grom quickly defers the praise to MC Canada. “This whole thing began with the church asking for SRI,” he says, but he’s smiling.


SRI Profitability

Socially Responsible Investing (SRI) is growing as a social trend. Gary Hawton, CEO of Meritas Financial Inc. writes that SRI funds are already growing quickly with institutional investors jumping onboard and retail investors are starting to see the value of aligning their investments with their beliefs. In 2005, as corporations and individuals, Canadians invested $60 billion in SRI Funds. In 2007, that number rose to over $500 billion.

“Studies have shown that SRI does not necessarily lead to lower overall returns,” Hawton says. (Church Matters, August 19/07) However, comparing those returns with the income of more traditional investments can be tricky because of the many variables between them. To illustrate the potential of SRI, Hawton suggests comparing the average growth on the Jantzi Social Index (JSI) to average growth on the S&P/TSX 60 Index and the S&P/TSX Composite. The JSI is a list of the top 60 performers based on social screening and financial returns, while the S&P/TSX 60 lists the top 60 performers over ten industries based upon financial returns. The S&P/TSX Composite Indexes lists the largest companies on the Toronto Stock Exchange, based on market value.

AVERAGE % INCREASE*

INDEX

1 YEAR

3 YEAR

5 YEAR

SINCE INCEPTION

Jantzi Social Index (JSI)

7.44

16.12

18.28

8.43

S&P/TSX 60

11.14

18.70

19.04

8.14

S&P/TSX Composite

9.83

16.93

18.32

8.33

 

*as of December 31, 2007

 

 


Passionate Stewards

Finance and statistics are not commonly thought of as spiritual pursuits, but for two passionate stewards, God is in the numbers.

Both Gary Hawton, the CEO of Meritas Financial Inc., and Michael Jantzi, the founder and President of Jantzi Research, pursue their jobs with God in mind. Each of them arrived at their current position as the result of an unexpected encounter with contemporary media – and perhaps, God.

Hawton was not looking for a job, but he was reading the Globe and Mail when the ad for CEO of Meritas caught his eye. “This will sound odd,” he says, “but the ad virtually jumped off the page at me. I was just flipping through the paper in my office and I could not flip past that page.” He called his wife and told her, “It seems like [this is] what God’s telling me to do.” Hawton, who has been at Meritas for seven years now, says that the job connects his beliefs – and what he views as his gift for financial management – with his work.

Hawton believes that many people talk about stewardship as tithing. “We end up talking about the 10% or the 20% [that we tithe], but I think God is just as concerned about the 80% that we keep. Because that’s still his money.” He suggests that we should ask questions as we invest our money. Would God want to invest in that company? Would God want to profit from this company? Would he endorse the company’s products, the way that they treat their employees, they wait they treat the environment? Hawton has heard many people give responsibility for investment choice to those who do the investing on their behalf. “I don’t think we’re called to be passive with God’s money. We’re certainly not called to be passive with the other gifts he’s given us, why on earth would we be passive with the financial gifts he’s given us?”

Jantzi grew up in a Mennonite family where discussion of social issues was a part of life, along with volunteering and philanthropy. In 1989 he was on route to becoming licensed for a financial services career when an interview on CBC Radio’s Morningside triggered a revelation. As the late Peter Gzowski spoke with Americans involved in Socially Responsible Investing (SRI), Jantzi suddenly realized that he could impact corporate behavior through the marketplace. About three weeks later, he made the move to Toronto where he began working at a business ethics consultancy. In Nov. 1992, he launched Jantzi Research, a company that allows him to align his personal value system and research. “I’m a research analyst junkie at heart,” he says. He describes his job of tracking the environmental, social and governance practices of industry as being “a cross between a very traditional financial analyst and a private detective or investigative journalist."

In January of 2000, Jantzi launched the Jantzi Index, a list of the top 60 equity performers based on social screening and financial returns.