By Lesley Scorgie / Illustration by Phlo Design
In the 1970s, companies, pension funds and people around the world started yanking their investment dollars out of South Africa. The country was ruled under apartheid, a vicious system of legalized racial segregation and discrimination against the mostly black population. From 1948 onward, South Africa’s white leaders and their policies encouraged violations of human rights such as torture, censorship, political repression, exile and detention without trial. To help bring about change, outsiders divested their financial interests. This eventually forced struggling South African-based businesses (more than 75 per cent of all companies in the country) to join the chorus calling for the end of apartheid, which was finally dismantled in 1994. Ethical investment, in this case, was used as a tool to bring about significant social and governmental change.
Though it may seem like a newish phenomenon, ethical or socially responsible investing has existed for several hundred years. In the 1700s, religious organizations avoided “sinful” investments which, for groups such as the Quakers, meant insisting that its members didn’t participate in the slave trade. Things have become more complex since then, and while North Americans get intimate with their inconvenient truth, it’s easy to forget that our investments can also become greener. No, that doesn’t mean recycling your bank statements. It’s about the choices you have for socking away your cash in stocks, mutual funds and other investments that demonstrate a social conscience.
Socially responsible investing is designed to maximize monetary objectives while at the same time achieving social good. In a nutshell, it encompasses the protection of people and the planet. Ethical investors typically avoid companies that harm the environment; cause (directly or indirectly) illness, disease and death; and harm or disrespect human rights. Many ethical fund managers shun businesses involved in tobacco, alcohol, gambling and the development of weaponry. Green investments, naturally, focus on environmental protection. Public companies such as Ballard Power Systems (clean energy), Arise Technologies Corp. (solar technology) and Canadian Hydro Developers (renewable energy) have gained significant market share and stock price momentum in recent years.
Before diving in, examine your social values and develop clarity around what you feel is right and wrong. Following your own guidelines, you can utilize one of these three strategic approaches to ethical investing. First, you can divest your interests, similar to what people did in South Africa, pulling their money out of an unethical situation. Second, you can screen out certain investments and keep them out of your portfolio altogether. Lastly, you can become a shareholder activist and attempt to instigate change through advocacy and smart use of shareholder voting rights.
These three approaches require something that many of us don’t have: time. To overcome this obstacle, many ethical investors turn to professional money managers who rigourosly divest, screen and advocate on our behalf. In turn, we pay management fees for these individuals to develop ethical investment strategies that make money. Go to socialinvestment.ca for much more info and links to specific socially responsible funds.
From real estate to stocks and bonds, our intention with most investments is to maximize financial returns without compromising our values. So, can you actually make money as an ethical investor? The bad news first: ethical investments haven’t produced near the same returns as their unethical counterparts, funds that specifically invest in gambling, defense, tobacco, alcohol and the like. For decades, investments like the Vice Fund (VICEX) have significantly outperformed benchmarks like the S&P 500 and all ethical funds. The good news, on the other hand, is that the Canadian ethical fund market has gained significant momentum and influence over the past few years, growing to approximately $504 billion in 2006 (20 per cent of all managed assets in Canada) from $65 billion in 2004 (four per cent of managed assets). The dramatic increase has been attributed to large pension funds adopting new social and environmental screening policies.
It appears, then, that it’s indeed possible to make money in the Canadian ethical investment market. But be forewarned: the performance results are hit and miss, and many of these funds don’t have more than 10 years of performance data – an important element for making informed choices. I’m not suggesting that you avoid ethical investing because the returns are scattered; I’m encouraging a thoughtful consideration of fund history, management and future direction. What we do know is that this market is growing and seems destined to become a seasoned performer as time passes.
Your choice comes down to balance, to where you feel your eco-sensibilities can be deployed most effectively. Apartheid may no longer exist, but there’s still a big bad world out there, and your investment dollars can make a difference. And what better investment is there, really, than one with both your future and future generations in mind. U
Lesley Scorgie is the author of Rich by Thirty: A Young Adult’s Guide to Financial Success (Key Porter Books). Need money tips? Then email Lesley and we’ll bail you out in an upcoming issue.
Category: Money
