Socially responsible investing isn’t so “niche” anymore. The trend toward applying environmental, social and governance standards to investments is generating a healthy flow of new business for a number of advisors across Canada.

Stephen Whipp, a certified financial planner in Victoria with Berkshire Securities Inc., has seen a significant jump in his SRI-only practice. “Already this year, we’ve taken on just as many clients as we did all last year,” he says. By the end of April, his book had grown by almost $7 million, he says.

“More people are becoming interested in SRI,” says Emily Rae, a CFP with Assante Capital Management Ltd. in Halifax. Rae, who has been in financial services for 16 years, started offering SRI about five years ago, when she moved to Assante. Growing interest in environmentalism, human rights and corporate responsibility is creating opportunities for advisors who offer SRI products, she says.

Whipp tells of a prospective client who recently approached him with a sizable portfolio. For the past three years, the client had asked his advisor to put his money in ethical investments. But only $7,200 of the client’s $800,000 portfolio was invested in SRI. The client moved all his business over to Whipp, with the understanding that, over time, his entire portfolio would be transferred into SRI.

In this case, the former advisor would not have been doing a bad job had the client cared only about returns. But the advisor was failing to deliver the kind of service the client wanted. Further, says Whipp, the client’s portfolio included wrap accounts that invested in some particularly “un-SRI” companies. But, as is typical in this kind of situation, the former advisor kept shooting down the client’s concerns, Whipp says: “[Clients are] told the same old red herring — you can’t make money.”

The fact is clients can make money on SRI. For example, Ethical Balanced Fund, sponsored by Vancouver-based Ethical Funds Co. , has garnered a 7.5% return over three years as of April 30. Acuity Canadian Equity Fund, sponsored by Acuity Funds Ltd. of Toronto, returned 11.4% over the same period. These returns are not exceptional, and it is not unusual for some SRI funds to outperform conventional mutual funds. A report released last year by Goldman Sachs’ global investment research in New York concluded that there is no relationship between SRI factors and earnings growth.

Still, SRI discussions can veer away from an advisor’s traditional comfort zone. Betty-Anne Howard, a CFP and chartered life underwriter with Independent Planning Group Inc. in Kingston, Ont., says that her approach, developed in her former work as a social worker, is non-confrontational. She is happy to help her clients invest in SRI as part of a diversified portfolio. She’ll even offer to speak to a prospective client’s current advisor if they want to learn more. About 25% of her book is in SRI and she’s aiming for 50% over the next few years.

Howard is a frequent speaker on the topic of sustainability and investing. What she calls the “purity factor” — people poking holes in the SRI because of what they perceive to be inconsistencies, such as different screening approaches — seems to be waning as investors learn more about the different values behind some of the available products.

SRI advisors are not only being judged by higher standards, says John Horwood, first vice president and investment advisor at Richardson Partners Financial Ltd.in Toronto, but by moving standards. Everyone has a vague concept of what “socially responsible” means. Some of Horwood’s clients, for instance, are opposed to gambling, pornography and alcohol, and will not invest in companies that deal with these vices. These clients might care little about corporate ethics, which is what drew Horwood to SRI in the first place.

Just as couples often become polarized over money, they also may choose different “sides” when it comes to investing, Howard says. For example, one spouse might want to pick investments based on negative screening criteria, in which the fund managers avoid companies engaged in certain harmful practices. The other partner, meanwhile, might be more interested in taking the best-in-class approach, which rewards companies that have the best social and environmental records within so-called “dirty” industries.

Some clients might refuse to invest in a company such as PepsiCo Inc. because of its impact on global water supplies. Whipp points out that the company is the largest purchaser of green energy in North America, a position some investors might want to encourage. “People have to understand that there are no perfect companies out there,” he says. “All companies have warts.”

@page_break@Your role as an advisor can be to explain the benefits of both approaches and to show how a fund representing each perspective would invest. SRI fund companies such as Ethical Funds and Meritas Mutual Funds of Cambridge, Ont., are good resources for material in this area. It might also be worthwhile to join the Toronto-based Social Investment Organization (www.socialinvestment.ca), which publishes a review of SRI funds every two years. One is scheduled for later this year and will be available online. And, according to SIO executive director Eugene Ellmen, the SIO plans to launch an advisor education program in 2009.

Introducing SRI into your practice can require more work. “The up-front time is significant,” says Whipp. He has prospective clients fill out an investment survey with about 40 questions that he designed. It looks specifically at the values behind a client’s interest in SRI. “I want to know what it is people don’t like about what’s going on in the world,” he says. Then he analyses the prospect’s current portfolio to determine what fits.

There is also ongoing work because SRI investors want to be well informed, Whipp says. He has one assistant who focuses solely on researching companies from environmental, social and governance perspectives. Whipp regularly communicates with clients about their investments, from both a financial and a socially responsible standpoint. IE