When it comes down to the nitty-gritty these days, Canadian investors seem to be heeding the advice of those financial advisers who are working tirelessly to promote socially responsible investments that will empower initiatives across the country which are designed to strengthen environmental, social, and corporate governance principles. I have written much about the growing interest in and expansion of the SRI industry in Canada, and I would like to return to this theme in order to touch upon some fresh evidence that illustrates the rising prominence of social responsibility in Canada.
In the past year, there have been pivotal actions by institutional and private investors to support increased transparency in the resource extraction sector, which happens to be one of the most important sources of revenue for the Canadian economy. With the Toronto Stock Exchange and its subsidiary, the TSX Venture Exchange, hosting almost 60% of all publicly-traded mining companies in the world, the importance of this industry cannot be underestimated in the Canadian context. The recent declaration of support from shareholders at NEI Investments – who represent over $362 million in assets under management – to support the work of the nascent Resource Revenue Transparency Working Group, is a sign that Canadian investors are progressively moving to hold Canadian corporations accountable for their actions on the local and international levels.
The Canadian SRI Review 2012, drafted by the Toronto-based Social Investment Organization ArtClip and released in January, also depicts the positive growth of socially responsible investment assets across Canada. The report highlights a 16% growth of total assets under SRI management since the publication of the previous SRI Review in June 2012, with the dollar value of SRI assets jumping from $517.9 billion to $600.9 billion, which clearly signals the financial opportunities of socially responsible investing. Most importantly, the report goes on to observe that “today, there is a much broader acceptance among fund managers and individual investors about the growing importance of environmental, social, and governance (ESG) factors to investment returns.”
The Canadian experience in growth of socially responsible investing is not merely a local anomaly. The Global Sustainable Investment Alliance (GSIA) also released a report in January discussing the size and trends of what it calls the “sustainable investment industry,” noting that “at least $13.6 trillion worth of professionally managed assets incorporate environmental, social, and governance concerns into their investment selection and management.” Increasing pressure and activism around the globe is contributing to the surge of investments in SRI assets, and even national governments are gradually endorsing socially responsible investment principles and practices, as seen with the example of the Government Pension Fund of Norway.
Indeed, investing in the right assets is not the only point of contention for ethical investors, as the folks at NEI Investments have shown. The ongoing controversy surrounding the gargantuan compensation awarded to Canadian corporate executives has been taken up as a rallying point for socially responsible investors with NEI, a cause that directly resulted in shareholder proxy resolutions with five of Canada’s biggest banks, “calling on them to consider ending the practice of setting CEO pay by benchmarking it against pay at rival banks.” The growing influence of socially responsible investors in Canada became immediately clear in this case, as three of the five banks offered to consider concerns around executive compensation straight away.
Steering back to socially responsible investing, Bullion Management Group (BMG) recently became the first Canadian precious metals enterprise to join the membership roster of the Social Investment Organization. The company is already noted for its commitment to accountability and transparency efforts, and with recent reports on SRI underscoring the growing profitability and benefit of the SRI industry, it is no wonder that BMG jumped on board the SIO management team. On the flip side, the acquisition of Canadian ESG leader Nexen by CNOOC – a state-owned Chinese company – in late February, has ethical investors worried that CSR and SRI commitments may come under threat from foreign ownership. The contrast between the movements of these two dedicated Canadian SRI leaders is ultimately indicative of the continuing see-saw which pits companies between the ethical demands of investors and questions of overall profitability emerging from the offices of corporate bosses and government lawmakers.
Originally established in 1995, the non-profit Canadian Business for Social Responsibility(CBSR) has become a pillar of Canadian business ethics advocacy and the organization views itself as “the Canadian representative in a world-wide network committed to corporate social responsibility.” With offices in the Canadian business hubsof Vancouver, Toronto, and Calgary, the CBSR has a strong and influential presence on the corporate scene. During its almost two decades of existence, more than seventy major Canadian corporations have become members of the CBSR in order to reap the rewards of accurate, insightful, and constructive consulting in the area of CSR principles and practices.
The motto of the CBSR is clearly reflective of the organization’s commitment to corporate social responsibility, stating that this initiative is “changing the way business does business.” Indeed, the central focus of the CBSR is to assist Canadian companies with the adoption and implementation of CSR policies in order to promote sustainability and efficiency, which the company believes are the ingredients for a “better world.” In order to realize the tenets of its overarching mission, the CBSR has built a platform based on a set of core values which see the firm as a key player in the evolution and conceptualization of responsible business practice. By tapping into the latest trends with the help of professionals who are equipped with “high impact management tools,” the CBSR envisions itself as a cutting-edge source of CSR policy planning and implementation.
As mentioned previously, the CBSR has served and continues to work with many major clients in the area of corporate social responsibility from both the private and public sectors. Over the years, the firm has worked with organizations such as the Royal Canadian Mint, Loblaws Companies Limited, Farm Credit Canada, Kal Tire, Scotiabank, and Talisman. In its role as an advocate of CSR policies, the CBSR produces CSR reports, enhances stakeholder engagement, and assists with the creation of CSR performance management frameworks. In early 2013, the CBSR underwent a wide-ranging overhaul after a strategic review, in order to “ensure CBSR’s relevance and leadership in a rapidly evolving CSR marketplace,” as the Board of Directors became concerned that the firm’s relevancy was being outpaced by the changing environs of the CSR sector.
A membership at the CBSR provides clients with an outlet for a wealth of valuable resources on corporate social responsibility, including practical and academic research services, access to exclusive learning and networking events, a gateway to increased exposure through the CBSR’s media contacts, potential recruiting opportunities through the CSR Job Board, and a growing directory of CSR experts around the country. In addition, the CBSR will now focus on the link between government and the private sector in advancing sustainability in Canada, while also developing an accredited CSR certification regime of its own. The company plans to launch a CSR Education Foundation to advance CSR knowledge in post-secondary institutions from coast to coast.
The repository of research data that the CBSR possesses on CSR issues is significant, and it is no wonder that the firm has become a leading node of research on corporate social responsibility in Canada. The CBSR engages in both sector-specific and cross-sectoral research, and has covered a diverse number of issues including corporate community involvement, social media, sustainability communications, supply chain risks, employee programming, collaboration tools, corporate governance, community impact, and more. The company also runs a blog called the “CSR Dialogues,” and it produces monthly newsletters which are transmitted to its members, while also maintaining a direct line to the public through its Twitter profile.
Aside from its technical and advisory services, the CBSR has also become widely known in Canada through its staging of the Annual CBSR Summit, the flagship event of this organization. Most recently, the organizers of the summit invited Canadian corporate bosses and business scholars to Toronto in November 2012 to explore and discuss “the evolution of CSR,” particularly where “transformational companies” are concerned. In a nutshell, transformational companies are seen as corporations which strive “to effectively deal with today’s uncertainties and successfully operate in a world in which energy, water, toxicity, carbon emissions” and other obstacles to growth are targeted with cogent CSR strategies. The theme of the 10th Annual CBSR Summit was “the essential role of business in building a sustainable future,” and featured expert speakers from GreenBiz Group Inc., the Business News Network, Bombardier, Export Development Canada, HP Canada, Rona, Unilever Canada Inc., Rio Tinto, and leading corporations.
There is a lot to be said about emerging trends in responsible investing, and fortunately for the socially responsible investing community, Dr. Tessa Hebb and her team at Carleton’s Community Centre for Innovation (3ci) are doing much of the talking these days. Dr. Hebb is a leading advocate of SRI and social finance projects, and is responsible for developing the most cutting-edge research on the innovations in and implications of the responsible investing sector. A forthcoming journal article in the academic period Regional Studies, co-authored by Dr. Hebb and recent Oxford University graduate Dr. Rajiv Sharma, discusses the role of new sources of financing that are driving major infrastructural overhauls and urban revitalization in the United States.
Aptly entitled “New Finance for America’s Cities,” this scholarly publication investigates the impact of new investment sources in US urban centres, as it sets out a best practice framework with the goal of ensuring that these investments have as deep of a social impact for American municipalities as possible. In the course of their research, Hebb and Sharma found that public pension funds are one of the major conduits of new finance, and they have progressively burdened the lion’s share of responsibility for funding urban revitalization projects in the United States, as a result of high government deficits following the downtown of the global financial crisis.
Hebb and Sharma posited that an “effective governance system is a key factor among successful impact investing funds.” The two researchers also observed that there exist four common denominators among the most successful pension funds: 1) a goal directed investment strategy, 2) they tap experts and intermediaries in order to create investments that result in financial and social gains, 3) they let expert vendors handle their specialized investments, and 4) they maintain a dialogue between senior management and board members on investment strategy.
In something of a happy coincidence, global management consulting giant McKinsey and Company interviewed Mark Wiseman, president and CEO of the Canada Pension Plan Investment Board, in November 2012 to learn about his organization’s approach to making smart investments in infrastructure and urban projects. During this segment, the CPPIB boss noted that governments would be more competitive in financial investing if they only learn to “compete more successfully for investment capital by reducing risk for investors.” Wiseman also suggested that a major sticking point in convincing lenders and government borrowers about providing cash up front for infrastructural renewal projects is that these investments will pay off in the long term, and not in the immediate short term.
On the whole, Dr. Hebb and Dr. Sharma, through their research, concur with Wiseman on the point that “urban growth is key to development”, while Wiseman notes that for the CPPIB, the best investments are the ones that will prove to be the safest, providing returns over 25, 50, and even 75 years, or until the time that the concession ends. In their report, Hebb and Sharma expressed their hopes that long-term changes in urban demographics and innovation will provide “an opportunity for savings to be put to work in advancing long-term sustainable growth”, and that investing in urban infrastructure is attractive to pension funds because of its “ancillary positive impacts on communities.” In the meantime, Wiseman noted in the CPPIB’s 2012 Report on Responsible Investingthat he believes “organizations which take the opportunities to manage ESG factors effectively are more likely to endure, and create more value over the long term, than those which do not.”
Governance is another element that is at the pinnacle of corporate stewardship, responsible investing, and in this case, urban revitalization. At the 2012 Global Agenda Council on Long-term Investing, Wiseman raised the subject of governance, observing that “having a long horizon accentuates the importance of governance models, and long-term investors can play a critical role in fostering leading governance practices.” His remarks correspond with research on responsible investing that has been produced by 3ci, particularly Dr. Hebb’s working paper on retail SRI investing, which gives key evidence on how individual and institutional investors have the power to influence corporations and encourage them to adhere to responsible investing practices.
Heather Hachigian’s report on the governance of responsible investment also calls for a heterogeneous approach that envisages institutional investors as part of a tripartite group, along with the state and markets, which concurrently provide checks-and-balances to promote good governance of financial markets. All in all, the research concocted by the 3Ci team – particularly the scholarly journal entry “New Finance for America’s Cities”, demonstrates that long-term impact investing is key to ensuring sustainable pattern of growth and development in urban municipalities of the United States (and abroad). McKinsey and Company’s interview with Mark Wiseman underscores the findings of the 3Ci team, and it should be no surprise that Wiseman will be a keynote speaker at the 3rd Annual Institute of Corporate Directors’ National Conference in May 2013, which will appropriately focus on shareholder activism, short-termism and long-termism in the financial industry.
Read a summary of this research on CBERN’s Research Snapshot repository