SRI funds improving on social factors: survey

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Canada's socially responsible mutual funds appear to be doing better on issues like ESG screening and integration according to Corporate Knights magazine's annual responsible investing guide.

The survey scores more than 50 SRI mutual funds on performance and social factors, including proxy voting, engagement and ESG integration. "Our average CK Social Score (CKSS) rose this year from 51.6 in 2009 to 55.41," the magazine notes. "However, our average engagement impact score fell from 44.83 in 2009 to 42.3 in 2010."

Despite this, the survey points to a number of positive changes related to engagement. "Northwest & Ethical Investments encouraged TELUS, Research In Motion, and Rogers to adopt stronger supply chain codes of conduct. Canadian retailer Le Chateau now discloses its supply code of conduct, and Goldcorp agreed to issue a 2009 Human Rights Impact Assessment for its Marlin mine in Guatemala."

Inhance Investment Management, a subsidiary of Vancity, obtained commitments from BMO and TD to assess the risks of financial instruments derived from greenhouse gas trading, the survey notes while TD Asset Management adopted and disclosed a sustainable investment policy in April 2009.

Inhance received the highest social score of all fund companies surveyed. In December, Inhance and IA Clarington Investments entered into a long term strategic relationship for the distribution of IA Clarington mutual funds through Vancity branches. "This is significant, as IA Clarington's deep investment network will significantly increase the assets invested in Inhance funds," Corporate Knights says.

On the performance side, the survey reveals that pure-play environmentally-oriented fund companies have financially outperformed more broad-based ESG-mandated fundcos. That list includes Criterion's Water Infrastructure and Global Clean Energy funds. However, such products do not employ socially responsible investing screens and some industry analysts argue that they are industry-specific funds, not SRI products.

Corporate Knights asked fund companies whether they invest in microfinance, community direct investment (CDI) or cleantech private equity. "Meritas is the only mutual fund company in Canada to invest up to 2% of its assets into CDI and microfinance. Inhance's parent company, Vancity, offers microfinance and CDI investments as separate products. Acuity invests in microfinance through international development bank bonds in its Social Values Balanced Fund, and was the only fund company in our report to invest in private cleantech companies through its Clean Environment Fund."

The survey also looked at turnover rates, the proportion of a portfolio's securities that are replaced with new ones in a given period of time. Rates ranged from zero (Meritas Money Market Fund, Meritas Balanced Portfolio Fund, and Acuity Alpha Social Values Portfolio Class A) to 143% (Mavrix Sierra Equity Fund).

"While growth funds typically have higher turnover rates, we still feel that a long-term growth manager should buy and hold, rather than try to time the market or use other practices that better belong in casinos."

(02/04/10)