March 14, 2007
Carrying the Shield for Responsible Investing in Canada
by Anne Moore Odell
Corporate Knights magazine names top Canadian SRI mutual funds and releases survey that finds SRI
funds mirror market performance.
Investors will do no worseóor no better--by putting their money with socially responsible mutual
funds or with mainstream funds, according to a new survey. The newest survey of Canadian SRI mutual
funds by Toronto-based Corporate
Knights magazine found that exactly half of the 48 funds performed in the top 50% of the mutual
fund market and the other half performed in the bottom half of the overall fund market. The survey
reports that the average Canadian equity fund posted an 11.29% one-year return for the year ending
January 31, 2007. For the same year period, SRI mutual funds returned 11.37%.
Corporate Knights identified shareholder activism as the biggest difference between the
two types of mutual funds. SRI funds exhort the companies they invest in to act on social and
environmental issues. Another change in SRI funds over the past several years is the shift away
from negative screening. Funds no longer want to be defined by what they avoid, but rather what
they do invest in.
The survey also reports that 2006 was the first year that Canadian SRI
funds had a voice in public policy debates, as the CEOís of three well-known funds, Ethical,
Inhance, and Meritas, responded to a less than satisfactory Clean Air Act passed by the Canadian
"Five years ago, shareholder engagement and proxy voting transparency were
nascent, now both are de rigour," said Toby Heaps, Corporate Knights Editor. "If you don't do it,
you are an anomaly. Reporting and transparency around shareholder engagement have also undergone
substantial improvements, with Ethical Funds setting the standard, probably the highest in the
world on this front."
Corporate Knights rated the 48 funds in two general areas: first,
the fundsí social qualities and second, their financial quality. They awarded companies between one
and five shields, five being the highest ranking. Seven funds received the highest award of five
The fundsí social score was based on several variables determined by a 15
question survey completed by the each fund company. These included how a fundís stock selection
took into account social and environmental factors, and the execution of community investment. A
transparent voting policy and record for the funds was considered, too. The level of each fundís
shareholder activism was also considered when awarding shields.
The financial quality of
the funds was determined by the fundsí one and three year percentile ranking compared to peer
funds. If a fund has less than a three-year period, the one-year number was used exclusively. A
fund that scored over 80% overall earned a five-star rating.
Ethical Funds Company, based in
Vancouver, British Columbia, was the top performer in the survey with six of its funds receiving
top marks of five shields. The six funds were Ethical Growth, Ethical Canadian Dividend, Ethical
Canadian Index Fund, Ethical Global Equity Fund, Ethical Advantage 2040 Fund (balanced), and the
Ethical Advantage 2030 Fund (balanced). Mackenzie Universal Sustainable Opportunities, from
Mackenzie Investments headquartered in Toronto, Ontario, also received five shields.
Ethical Funds recently released its Shareholder Action Program 2006 Status Report, a review of
its 2006 corporate engagements and a guide to which sustainability issues it thinks will matter
most to investors in 2007. Robert Walker, Ethical Fundsí Vice President of Sustainability, told
Socialfunds.com "The report shows that Ethical Funds engaged more than 800 companies over the past
12 months as part of its Shareholder Action Program, helping to make these companies even better
corporate citizens. Ethical Funds engaged companies on seven major themes: climate change,
biodiversity, genetically modified foods, HIV/AIDS, environmental justice, human rights and
Heaps pointed to several areas he hopes will see growth in the SRI
field, "The two areas where a lot of progress still remains to be made are in allocating capital to
community direct investment and companies that are part of industries of the future."
Established in 2002, Corporate Knights is an independent media company that publishes its
magazine six times a year with a circulation of 100,000. Corporate Knights is distributed inside
the national newspaper the Globe and Mail and is also available online. Every elected provincial
member and federal member of parliament, the top 1000 CEOs, and leading business schools receive
copies of Corporate Knights, as well. Besides its annual survey of Canadian SRI mutual funds,
Corporate Knights also publishes a yearly list of the Global 100 Most Sustainable Corporations in
the World, which it announces at the World Economic Forum in Davos.