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November 25, 2002
The Ethical Investment Group, Canada's Socially Responsible Investment Club
    by William Baue

Initially spurred by a popular trend in the 1990's, a Montreal-based investment club continues its commitment to socially responsible investment.

The notion of investment clubs captured the popular imagination in 1996 when a group of 16 women published a book on how their collective portfolio beat Wall Street returns. The women call their group the Beardstown Ladies' Investment Club, after their hometown in rural Illinois (Ed.note: After publishing their book, the Beardstown Ladies corrected an error in their calculations and found they actually underperformed the S&P 500 for the period mentioned in the book, not outperformed). The Beardstown Ladies function as a typical investment club, where a group of individual investors pool some of their money to make joint investments. Investment clubs can offer benefits such as shared knowledge, reduced transaction costs, and increased diversification.

The Beardstown Ladies' book spawned a movement, and soon many investment clubs were being founded. Little surprise, then, that investment clubs devoted to socially responsible investing (SRI) sprang up as well.

One such club, the Ethical Investment Group (EIG), dates back to 1998, when it was founded as the Socially Responsible Investment Associates of Montreal (SRIAM). The group changed its name in November 2000.

"Our club was born out of the recognition a few years back of a lack of socially responsible investment products in Quebec," EIG member Brenda Plant told "Many SRI mutual funds had not bothered coming into Quebec because of the language barrier, among other things." English and French are both official languages of the province.

EIG members were skeptical of SRI mutual funds anyway, as the top holdings of most SRI funds would not qualify for inclusion in the EIG portfolio. Ms. Plant explained how EIG's investment philosophy differs from most SRI funds.

"Our approach is pro-active," said Ms. Plant. "We positively screen for publicly traded companies that offer services or products that we believe contribute to a sustainable future. We do not have explicit negative screens, but our membership has made it clear that we are not interested in investing in even the best-of-sector companies that are in sectors that don't fit into our vision of a sustainable future." For example, companies involved in weapons, tobacco, gambling, or nuclear power are excluded from investment.

EIG's Equities Trading Committee oversees investment in public companies. The committee assesses a company's direct, secondary, and future environmental impacts as well as its social impact. The committee of course also analyzes the company's financials for indicators of economic viability based on present value, growth potential, and risk. EIG's holdings include fuel cell producers Ballard Power (ticker: BLD.TO) and Stuart Energy (HHO), solar panel manufacturers Energy Conversion Devices (ENER) and AstroPower (APWR), and natural foods retailer Whole Foods (WFMI). Equities comprise 60 percent of the club's portfolio, with the remaining 40 percent devoted to community investment. The community investment portion is quite large considering that most social investors allocate less than five percent to community investing, if anything at all.

EIG's Community Investment Committee identifies and funds organizations that support communities and individuals that are otherwise denied access to capital. Such organizations include Montreal Community Loan Association, Sarona Global Investment Fund, and Equal Exchange, a fair trade coffee cooperative.

Committee activities are supported in part by a $25 annual administrative expense fee charged to all 50 members, the legal limit for membership.

"Otherwise all the work is done on a voluntary basis by committed members," said Ms. Plant.

Members also make monthly contributions of anywhere from $50 to $300, though all members have equal voice in the collective regardless of their financial stake.

"We have two other committees: the Shareholder Activism Committee and the Outreach Committee," said Ms. Plant. "We have just begun a shareholder engagement component." For example, the Shareholder Activism Committee proposed engaging in shareholder action with Second Cup to convince the company to purchase certified fair trade coffee.

The Outreach Committee promotes and disseminates information about socially responsible investing.

"We now have helped three other such socially responsible investment clubs to develop," reported Ms. Plant in testament to the growing appeal of socially responsible investment clubs.


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