Mitigating risk through SRI

Mary Jane McQuillen has been described as a rock star in the world of socially responsible investing. The New York City-based fund manager heads up the ESG (environmental, social and governance) division of Clearbridge Advisors, which was recently appointed to sub-advise the Meritas U.S. Equity Fund. McQuillen was in Victoria this week, speaking at the Canadian Responsible Investment Conference.

Clearbridge, with $55 billion in assets under management, does the majority of its research in house, with a team of 20 fundamental analysts. For funds with a socially responsible mandate, ESG factors are integrated into the research.

“All the stocks are researched with ESG in mind,” McQuillen explains. “We decide what’s in and out at the stock selection process.” Standard screens, as requested by Meritas, are applied, such as alcohol, tobacco, weapons and pornography.

“Our clients are committed but they’re also very practical,” McQuillen says. “It’s important to look at the mission as well as performance. We seek best in class all the time but that doesn’t seem to happen in the world today. We acknowledge that sometimes you’re not going to find best in class. So we might pass on the industry or we might actively engage with companies.”

Clearbridge has approximately 1,000 meetings a year with companies and conducts regular on-site inspections. McQuillen believes this allows Clearbridge to drill down to the culture of companies. “A lot of companies are very good at filling out surveys—but you want to see a translation of what they put on paper to the operation of the business.

“There are a lot of companies with great compelling stories that are below the radar. We think it’s great to invest in those companies as well.”

The strategy for the Meritas fund is to invest mostly in large-cap stocks, about 45 names, with a long-term approach. “It’s not trying to be high risk and high return; it’s higher return with less risk.”

“We’ll usually be in line with the benchmark when times are good,” McQuillen notes. “When the market tanks, we tend to lose less.” In 2008, the Clearbridge portfolio was down 25% while the S&P 500 lost 37% over the same period.

Similar to many ESG specialists, Clearbridge faces challenges in the advisor channel. As in Canada, many U.S. advisors don’t understand SRI or have misconceptions about it, McQuillen says. In a survey, Clearbridge advisors pointed to myths such as underperformance or the so-called moral agenda of SRI funds. McQuillen says the solution is education. “Many advisors simply don’t know what the current situation is.”

Ambachtsheer wins lifetime award

At the closing dinner of the Canadian Responsible Investment Conference, Jane Ambachtsheer was announced as the winner of the annual SIO Lifetime Achievement Award.

Ambachtsheer is well-know in the institutional investment sector and heads up Mercer’s global responsible investment team. She is also an adjunct professor at the University of Toronto where she teaches a graduate course on SRI.

SIO members and conference delegates vote on the award. The other nominees this year were Deb Abbey, Tessa Hebb and Ethical Funds’ Bob Walker.

Michael Jantzi, CEO of Jantzi-Sustainalytics, won the inaugural Lifetime Achievement Award in 2010.

Doug Watt is an Ottawa-based writer and editor and co-founder of SRI Monitor.