RIA launches advisor certification program

“Responsible investing is becoming more mainstream,” says Deb Abbey, chief executive officer of RIA formerly 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.”

Abbey says RI certification will enable the Canadian public to identify the investment professionals who have been trained to understand and integrate ESG risk into decision-making, whether these professionals are choosing individual securities or mutual funds on behalf of clients. The RIA website provides a means for investors to find advisors with RI certification, she says. The RIA also publishes a guide to “responsible” mutual fund companies, to assist advisors and investors in selecting funds.

To qualify as RIA member and be defined as responsible, a fund must use one or more RI strategies and these must be communicated in the fund’s prospectus. Fund performance for all widely available RI funds in Canada — for example, funds sponsored by NEI Investments, IA Clarington Investments Inc., both of Toronto and OceanRock Investments of Vancouver — is available in the RIA’s quarterly mutual fund performance report.

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

> RI Fundamentals – A three-hour introductory course for investment professionals and other who want basic insight into RI. The course offers three CFA CE credits, three Advocis CE credits and three IROC CE credits.

> RI Essentials – A 10-to-12 hour comprehensive examination of RI, including how to identify ESG factors and incorporate them into investment decisions. This course is eligible for 10 CE credits in all categories.

> Enhanced Financial Analysis – A six-to-eight hour course that examines the use of responsible investment data in corporate analysis and stock valuation. This course is eligible for six CFA credits.

“Reducing risk has become a lot more challenging in a world where climate change, water scarcity and global supply chain issues dominate the business pages,” Abbey says. “There’s a growing consensus 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.”

Abbey says there is a growing realization among professional investors that 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.

“There are many RI issues that can add or detract from value, depending on how a company addresses them,” Abbey says.

Next: A commitment to responsible investing
@page_break@
A commitment to responsible investing

Stephen Whipp, senior financial advisor at Stephen Whipp Financial at Manulife Securities Inc. of Victoria, B. C., applies responsible investment criteria to all client portfolios and has built his business on “ethical investing and values-based financial planning.” He says any advisors earning the new RI designation will be affirming their willingness to commit to RI and educate themselves.

“This is not an area of investing that you can do off the side of your desk,” says Whipp, who builds individually 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.”

The latest research done by the RIA showed more than $600 billion was invested in RI assets at the end of 2011, representing 20% of financial assets under professional management in Canada. Abbey says the RI market is dominated by institutional funds, with retail mutual funds accounting for only 2% of RI assets. She says some investors still mistakenly believe they must give up performance if they want to invest responsibly, but research shows that perception is flawed.

At Dec. 31, 2013, the Jantzi Social Index, which measures the performance of socially responsible companies, showed an annualized return of 6.22% since Jan. 1, 2000, while the S&P/TSX composite index gained an average of 5.94% and the S&P/TSX 60 gained 5.71%.

A 2009 study by the United Nations Environment Programme Finance Initiative, examined 36 academic studies of RI performance, and found that 20 showed a positive relationship between ESG factors and portfolio performance, while 10 were neutral to positive, and six neutral to negative.

Abbey says environment and climate change are usually at the top of the list in RI polls on investor concerns. But RI covers a much broader spectrum of corporate behavior and consequences. For example, the collapse of the garment factory in Bangladesh last year raised many questions about the responsibilities of Canada’s Joe Fresh fashion retailer, which sold goods produced in the destroyed factory, and its corporate owner Loblaw Cos. Ltd. Effective brand management requires that attention be paid to working conditions of suppliers, Abbey says.

“That model of putting out fires without planning for the future across all business lines, just won’t cut it anymore,” she says. “Our world is too complex and the tools that investment managers have traditionally used to manage risk simply aren’t up to the job. We need to know how these companies are managing the future.”

Fund managers and other shareholders can influence corporation’s RI decisions through their proxy voting and other forms of shareholder action, Abbey adds, and advisors with knowledge on these issues can differentiate themselves.