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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 government.

"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 shields.

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 corporate governance."

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.

 

 
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