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May 25, 2005
The Value of Local Expertise in SRI Research: Jantzi Research Knows Canada
    by William Baue

Jantzi Research conducts socially responsible investment research and corporate social responsibility rating and ranking focused on the Canadian market primarily for institutional investors.

March 2005 saw the second annual ranking of top Canadian corporate social responsibility (CSR) performers published in the Globe and Mail Report on Business magazine, "arguably the most important business publication in Canada," according to Michael Jantzi. Mr. Jantzi is the founding president of Toronto-based socially responsible investment (SRI) research firm Jantzi Research, which performed the rankings.

When he first conceived of the ranking, Mr. Jantzi expected he would have to work hard to convince the editors at the Globe and Mail, the national newspaper.

"It turned out to be one of the most amazing business experiences I've ever had, because we went in with a fully prepared deck, and within five minutes or less, the discussion had moved from why to how--the editors got the concept of CSR right away, as they had obviously educated themselves," Mr. Jantzi told "We decided to look at industries instead of trying to generate one grand list--comparing companies across so many different factors and sectors would create a false sense of precision."

The ranking, which rated 109 companies in 13 sectors this year, brought widespread attention not only to CSR, but also to Jantzi Research, which distinguishes itself from other SRI research firms by focusing exclusively on the Canadian market. This orientation has determined the direction and character of the firm since Mr. Jantzi founded it in his two-bedroom apartment 1992 after hearing a radio interview with SRI pioneer Amy Domini.

"The US SRI market has always been (and amazingly still is) focused on screening out 'sin' sectors, whereas the Canadian SRI market always been more nuanced," explained Mr. Jantzi. "When we started, the Toronto Stock Exchange 300 index was almost half resource companies--44 to 48 percent by market cap."

"We felt that, if social investment was going to grow in Canada, we had to get assets invested, and if you wanted diversification, you had to have resource companies in your portfolio," effectively eliminating the option of screening out any sectors, he continued. "What's more, there are a lot of one-mill towns, where paper, or mining, or oil is the life-blood of the community," making it hard to pull the rug out from these industries while claiming to be socially responsible.

To solve this conundrum, Mr. Jantzi developed a "best of sector" approach, which funnels investment into the most responsible companies in problem sectors instead of screening these sectors our completely. US-based social investors, who can more easily afford to exclude entire sectors and still have plenty of companies available for broad diversification, reacted against the notion at first.

"I'm still scarred from when I gave a presentation on best of sector at the SRI in the Rockies conference in Breckenridge in the '90s, and I was just skewered--'best of sector is a sell-out,' the audience said," Mr. Jantzi said. "SRI is about change, it's not about perfection--if we're eliminating all of those companies from our portfolio, then there's no incentive for those companies to improve, because they will never see SRI capital."

Another factor distinguishing Canadian from US social investing was the role of shareholder activism, which was limited for many years by Canadian securities regulations that placed high hurdles for advocates. For example, one clause barred resolutions addressing social and environmental issues. To address such obstacles, Jantzi Research conducted a year-and-a-half of research before publishing a paper in 1996 highlighting the barriers to shareholder advocacy in Canada and making numerous recommendations.

"One of the recommendations was, essentially, just file proposals and see what happens," said Mr. Jantzi, who helped file a resolution on child labor with five retailers. "We were astounded at the seriousness the resolution met--four of the five companies agreed to circulate the proposal."

While shareholder advocacy in Canada is still less developed than in the US, it has made great strides recently--last year Bank of Montreal (ticker: BMO) went so far as to endorse a sustainability reporting resolution, a first in Canada.

To provide its clients with recommendations on how to vote on resolutions, MJRA recently partnered with US-based proxy advisory firm Investor Responsibility Research Center (IRRC). Partnering is an oft-used strategy by Jantzi Research to leverage expertise synergistically. For example, Jantzi Research partnered with Dow Jones Indexes and State Street Global Advisors to launch the Jantzi Social Index, a socially screened, market capitalization-weighted index modeled on the S&P/TSX 60, in January 2000. MJRA is also a partner in the SiRi Company, a global group of 11 SRI research firms throughout the world with 125 analysts that share local expertise and information globally.

"If you don't know a market intimately, you will miss data sources, and even if you have the data, you need to understand the context," Mr. Jantzi said. "If you don't have local slant on things, you can get an analysis that's diametrically opposed to the reality of the situation."

For more than a dozen years, Jantzi Research has demonstrated the value of understanding the regional peculiarities of the Canadian social investment market.


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