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Economic crisis may open door to SRI
October 24, 2008
Winnipeg, Manitoba - Sustainability. Value. Transparency. As the world’s economy quakes, these are key issues in the demand for restructuring of the global financial system, and they may be qualities that open the door to wider recognition of Socially Responsible Investing (SRI).
Mennonite organizations, including Mennonite Church Canada, have long been supporters of Socially Responsible Investing, where investments are screened according to environment, social and governance (ESG) parameters. Such altruistic notions may be appreciated by some, but brushed aside by others during times of economic crisis as investors focus on protecting their own financial interests.
But times are changing.
Michael Jantzi, the founder and President of Jantzi Research, an independent Canadian investment research firm that evaluates and monitors the ESG performance of global securities, pointed out that probably for the first time ever, issues of the environment are not fading into the background as the world struggles with economic volatility. “It’s unusual... There is no question that we’re seeing people reflect their values in different ways,” he said in a telephone interview.
For Patricia Lovett-Reid, senior vice president with TD Waterhouse Canada Inc. and the host of cable TV’s Business News Network’s program Moneytalk, SRI is taking on new importance because it has shifted from an ethical focus to one of sustainability.
In a telephone interview, the self-professed “investor on the street” says that ethical investments tend to focus on negative screens – or what not to invest in – such as “sin” stocks for companies involved with alcohol, tobacco, gambling or sex.
“But with sustainability investing, the focus shifts to more positive qualities, the integration of economic, environment, [and] social governance standards that build communities and people.” She defines this as a holistic view of investing. “That is good for business.”
Lovett-Reid remarks that she does a lot of public speaking for TD Waterhouse and has noticed that sustainable investing is a growing concern. If she does not bring up the topic, someone in the audience will. “This is a groundswell at the grassroots level.”
Sustainable investing is a topic for financial organizations as well. In a recent conversation with her CEO, Lovett-Reid was told that it was important to deal with the current economic crisis, but it was just as important, if not more so, to build for the long term. “Part of that is having best practices and corporate governance but it’s also human capital development,” she states.
“The things that we have talked about in socially responsible investment are not just SRI issues,” Jantzi says. “We’ve long believed that they’re just the right way of looking at things and doing things. They focus on the long-term and not the short term, ensuring there is greater transparency in the system.”
In his report The Market Crisis and its Impact on Socially Responsible Investing, Jantzi writes “Our industry has a long history of engaging companies, asking directors and senior managers to provide more information about their operations to allow shareholders to make more informed and better decisions.”
ESG qualities and SRI can translate into profitability. Lovett-Reid points to the US Domini 400 Social Index, which was launched in May 1990. “It’s a widely recognized benchmark for measuring the impact of social and environmental screening. Since inception to September 2008, the index had a return of 9.98% and that clearly outperformed the large cap S&P 500 at 9.35%.”
“So what’s happening is Socially Responsible Investing is not a compromise for investors,” she concludes.
The Jantzi Social Index, the Canadian counterpart to the US Domini Index modeled on the S&P/TSX 60, emerged in 2000. It offers lower but still encouraging results. From inception to September 30 2008, the JSI index demonstrated an annualized return of 5.93% compared to the S&P/TSX 60 which had an annualized return of 6.13%.
On a recent Moneytalk interview, Gordon Pape, author of Sleep Easy Investing and publisher of www.Buildingwealth.ca suggested that 5% was a solid return for the average investor over the long term.
As a foundational approach to investing, SRI just may prove to be part of a long-term solution to volatile financial markets.
To find out more about Mennonite Church Canada’s involvement with SRI, see Faith and money talk: MC Canada helps lead the way. Check out Jantzi Research at www.jantziresearch.com.