September 26, 2002
Large Canadian Firm Launches Four SRI Mutual Funds
by William Baue
Phillips, Hager and North will unveil four Community Values Funds, which apply socially responsible
Next week, the Vancouver-based investment management firm of Phillips, Hager and North (PHN) will launch a group of funds called
the Community Values Funds. The four new offerings will resemble the firm's existing bond, equity,
balanced, and global equity mutual funds, but will be screened using socially responsible
investment (SRI) criteria. PHN has retained Toronto-based SRI research firm Michael Jantzi Research
Associates (MJRA) to assess the social and environmental performance of companies considered
for inclusion in the portfolios.
For more than a decade, PHN has been managing SRI
accounts for institutional investors, primarily healthcare foundations and religious foundations,
as well as high net worth individuals.
"Initially, our clients were primarily interested
in avoiding the so-called 'sin' industries, especially alcohol and tobacco, but in recent years
this list has broadened to include such issues as animal welfare, greenhouse gases, and weapons
manufacturers, among others," said PHN Vice President Brent Sutton. "The combination of growing
client interest in SRI plus an expanded range of issues that clients are concerned about told us
that the time was right for our Community Values Funds."
After selecting companies that
have attractive financial characteristics, PHN applies both avoidance and best-in-class screens to
identify companies with attractive social and environmental characteristics. In sectors with
unavoidable environmental impacts, such as resource extraction, PHN applies best-in-class screens
to identify companies with the most sustainable business practices.
The Community Values
Funds apply avoidance screens to filter out companies primarily engaged in the production and
distribution of alcohol, tobacco products, pornographic materials, gaming, and military weapons.
"The word 'primarily' is in there at the request of our lawyers!" Mr. Sutton told
SocialFunds.com. "Our lawyers tell us that we can't possibly guarantee that Company XYZ, which
screens well, does not have some sales, no matter how small, to, say, Philip Morris."
PHN applies a clear benchmark for involvement in these so-called "sin" activities.
"We do have an objective criterion: any company obtaining more than 5 percent of their total
revenues from our 'exclusionary' activities cannot be held in the funds," said Mr. Sutton. "We
prefer less. We will also support any shareholder proposal asking companies to explore reducing or
eliminating their involvement in these activities."
Despite the name of the new funds, PHN
does not intend to use community investing strategies in the Community Values Funds.
does not engage in direct shareowner action such as filing shareowner proposals. However, it does
express its concerns to companies with social or environmental practices that could be improved.
"We think it is great that other investment managers want to lead very public campaigns
against certain corporate practices," said Mr. Sutton. "We are a very large investment manager
within Canada, and we believe that we can play a more effective role by making our views known to
management outside the public's glare."
In launching the Community Values Funds, PHN
seeks to contribute toward refocusing the debate in the mainstream investing community over whether
or not SRI generates higher or lower returns.
"The debate needs to shift to the
question, Should the option of SRI be made available to investors, and can it be done in a way that
does not compromise their long-term investment objectives?" said Mr. Sutton. "Our research clearly
shows that you do not have to sacrifice [financial] investment objectives in order to invest in a
socially responsible manner. Our Community Values Funds are about providing our clients the choice
to align their investment portfolios with their personal values."