Veteran vancouver portfolio manager Steve MacInnes had reached one of the summits of global investing as chief investment officer and head of Canadian equities for HSBC Investments (Canada) Ltd. In fact, his on-the-job performance with the international bank had also earned MacInnes a position with the parent HSBC’s 10-member global investment strategy group.

Not only did he find the work enjoyable, it was generating great results, as well. From 1996 to 2003, assets invested in Canada under MacInnes’s leadership almost doubled to $3.5 billion from $1.8 billion.

But as alluring as big-time portfolio management was, after eight years with HSBC, the 58-year-old knew that it was time to pay more attention to a growing inner voice that was telling him to “think small.”

Consequently, he packed up his global portfolio management expertise and chucked his high-profile job earlier this year to join Real Assets Investment Management Inc. , a Vancouver-based boutique that specializes in socially responsible investing (SRI). He is its chief investment officer, portfolio manager and compliance officer.

“My time at HSBC was terrific because it’s a global organization,” MacInnes says. “But I had a desire to get back into straightforward hands-on money management in a small firm in which you have less bureaucracy.”

Fortunately, that desire coincided with a reorganization at Real Assets; and this, MacInnes explains, presented him with an opportunity to get in on the ground floor at a boutique firm that employs just 12 people. “That’s very exciting, because everybody here makes decisions across many disciplines,” he says.

In addition, the opportunity to work in SRI is one that interests MacInnes profoundly. “I’d watched SRI creep into HSBC and I felt that, over time, this type of investing would become more mainstream,” he says. “Finally, SRI aligns itself quite nicely with my own personal values on the environment and social responsibility.”

On that note, MacInnes and the other key executives at Real Assets — CEO Kerry Ho and social investment strategy vice president Dermot Foley — are certainly on the same wavelength. They’ve recently expanded the company’s product line by adding three new SRI-based mutual funds, bringing the total number of retail funds to five in preparation for the upcoming RRSP season.

“I joined this firm to perform two tasks,” MacInnes says. “The first is to elevate the professional management of Real Assets’ portfolios by bringing my skill sets into the process. The second is to broaden our mutual fund base.”

In both cases, MacInnes and the company have fully embraced SRI principles. “It’s a way of incorporating the assessment of non-traditional risks into investment management,” he explains.

This includes screening companies on environmental and social issues, promoting shareholder advocacy to improve corporate responsibility and encouraging corporations to become more involved in the community.

The screening takes both a positive and negative approach. Positive screens can include seeking out companies with good employee relations, strong records of community involvement and exemplary environmental impact policies and procedures. Negative screens can eliminate investment in companies that operate with sweatshops or child labour, or that manufacture alcohol, tobacco or pornography.

“These non-traditional risks are very real because they can impact a company’s future streams of cash flow, which is the ultimate way to value a stock,” MacInnes warns.

The trick, of course, is in measuring these risks, but MacInnes is convinced that SRI is the wave of the future. Recent statistics from the Social Investment Organization, the 400-member national association for SRI, show there’s already substantial growth in the SRI concept, even though SRI is still in its early days in Canada. The umbrella group estimates that SRI in Canada has grown by 27% to $65.5 billion over the past two years alone.

Moreover, SRI received a major boost in late October, when the Canada Pension Plan Investment Board released a new policy on responsible investing in which it makes three significant commitments:

> The CPPIB has the option of directly engaging with the corporate boards or management of companies in which it invests to discuss concerns over issues of corporate conduct;

> The pension plan pledges to work with other shareholders of its holdings to draft and recommend shareholder proposals;

> And, finally, the CPPIB will support and conduct research into environmental, social and governance factors and how they impact share values.

@page_break@As a result, some SRI stakeholders say that by taking such measures, this could lead to the $87-billion fund fully embracing SRI principles.

“This is a watershed event,” MacInnes says. “It means the CPP will incorporate environmental, social and governance factors as they impact long-term risk and return. It’s the first time a very large pool of capital in Canada has publicly announced this is the way it’s going. SRI has long been established in Europe, but now the light bulb has definitely gone on in Canada.”

For its part, Real Assets is about to help that light bulb burn brighter across Canada’s retail investment landscape. The five-year-old company hopes to be through the regulatory and unitholder approval processes by Dec. 1 to launch its three new funds: Real Assets Canadian Equity Fund, Real Assets Monthly Income Fund and Real Assets Money Market Fund.

MacInnes explains that the new funds will complement the company’s two existing funds: Real Assets Social Leaders Fund and Real Assets Social Impact Balanced Fund.

Although the company is not making any changes to the Social Leaders Fund, which is a global equity fund, it is altering the Social Impact Balanced Fund by changing from passive to active investment management and by expanding it to include global securities, MacInnes says.

Real Assets also hopes that, with its new five-fund stable, it should be able to increase its asset base from the current $135 million to about $750 million by 2010. MacInnes says that growth should be assisted by the company’s fully integrated approach to portfolio management. “A lot of other firms turn their fund management over to somebody else, but we don’t,” he says.

The company is also buoyed by research that shows SRI returns are on par with, or sometimes exceed, traditional market benchmarks. In Canada, the Jantzi social index — a stock index that measures SRI performance — has grown by 50% since October 2001, at virtually the same rate as its comparative index, the S&P/TSX 60.

Looking forward, MacInnes says, part of Real Assets’ growth process will be to educate financial planners and advisors across Canada. “We think there are advisors out there with clients who are searching for our kind of products,” he says.

And the company’s message to those advisors and their clients is straightforward: SRI is not only good for investor pocketbooks, it’s also good for the planet. IE