Responsible investing goes to school

“Responsible investing is becoming more mainstream,” says Deb Abbey, CEO of the RIA, formerly known as the Social Investment Organization. “A knowledge of ESG issues and how they affect shareholder value in public companies is a function of good investment management and results in better, more informed decisions.”

The RI advisor certification will enable Canadians who want to invest responsibly to identify financial advisors who have been trained to understand and integrate ESG risk into their decision-making process, Abbey says, whether individual securities or mutual funds are chosen in discussions with clients.

Along with these training and certification initiatives, she adds, the association will provide a means for investors to find advisors with the RI advisor certification on its website.

The RIA also publishes a guide on RI fund companies to assist advisors and investors in selecting mutual funds.

To be defined as “responsible,” a fund must use one or more RI strategies, which must be communicated in the fund’s prospectus.

Fund performance for all widely available RI funds in Canada – for example, certain funds sponsored by Northwest and Ethical Investments LP and IA Clarington Investments Inc., both of which are based in Toronto, and OceanRock Investments
of Vancouver – is available in the RIA’s quarterly mutual fund performance report.

The RI Academy’s courses offer a self-paced and flexible learning experience, Abby says. They feature content from leading global experts in RI, as well as real life and hypothetical case studies. The courses include:

– RI FUNDAMENTALS is a three-hour introductory course for investment professionals and others who want basic insight into RI.

This course counts as three continuing education (CE) credits for chartered financial analysts, Advocis members or those licensed with the Investment Industry Regulatory Organization of Canada.

– RI ESSENTIALS is a comprehensive examination of RI that takes 10 to 12 hours to complete and includes aspects such as how to identify ESG factors and incorporate them into investment decisions.

This course is eligible for 10 CE credits in all categories. As well, successful completion of this course is a requirement for advisors seeking the RI advisor certification.

– ENHANCED FINANCIAL ANALYSIS examines the use of RI data in corporate analysis and stock valuation. This course, which takes six to eight hours to complete, is eligible for six CFA credits.

Stephen Whipp, a certified financial planner and senior financial advisor with Stephen Whipp Financial, which operates under the Manulife Securities Inc. umbrella in Victoria, applies RI criteria to all his client portfolios. Whipp has built his business on “ethical investing and values-based financial planning.”

Any advisor who earns the new RI advisor designation, Whipp says, will be affirming his or her commitment to RI.

“This is not an area of investing that you can do off the side of your desk,” says Whipp, who builds customized portfolios for many clients and is excited about taking the comprehensive enhanced financial analysis course. “RI takes a lot of extra analysis, especially if the advisor is recommending individual securities as well as funds for clients.”

Investing with a focus on RI is becoming more important. There is growing realization among professional investment managers and advisors, Abbey says, that portfolio holdings are affected by such issues as a company’s position on human rights, labour relations, consumer protection, worker safety, board diversity, executive compensation and the environmental impact of corporate practices.

“Reducing risk has become a lot more challenging,” Abbey notes, “in a world in which climate change, water scarcity and global supply-chain issues dominate the business pages.

“There’s growing consensus,” she continues, “that accurate valuations and proper risk management are only possible with adequate disclosure of how companies are addressing these issues. If you can’t measure it, you can’t manage it.”

The latest research conducted by the RIA revealed that more than $600 billion was invested in RI at the end of 2011, representing 20% of financial assets under management (AUM) in Canada. Abbey says the RI market is dominated by institutional funds, with retail mutual funds accounting for only 2% of RI AUM.

In part, Abbey says, that’s because some investors still mistakenly believe they must give up performance if they want to invest responsibly; however, research shows that perception is flawed.

As of Dec. 31, 2013, the Jantzi social index, which measures the performance of socially responsible companies, had an annualized return of 6.2% since Jan. 1, 2000 – which beat the average annual returns of both the S&P/TSX composite index (5.9%) and the S&P/TSX 60 index (5.7%) during the same period.

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