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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 investment strategies.

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 "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.

PHN 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."


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