Performance figures for each account are calculated using time weighted rate of returns on a daily basis. The Composite returns are calculated based on the asset-weighted monthly composite constituents based on beginning of month asset mix and include the reinvestment of all earnings as of the payment date. Composite returns are as follows:

SRI: Profits with Principles

By Peter Mortifee, MD

“Socially Responsible Investing (SRI) is seen by some as an important part of what makes securities acceptable in a portfolio and by others as an impediment to maximizing returns driven by “tree huggers” and “ecowarriors”. It is our pleasure to provide you with some of the facts about SRI written by Dr. Peter Mortifee. Peter is both a client and a friend who is also a very disciplined investor and could easily have followed a career as an analyst if he had chosen to do so. What you are about to read should interest and intrigue you, introducing you to a concept where your investment choices can align with your values without sacrificing long-term returns.”

– John Nicola, CLU, CHFC, CFP, Chairman & CEO, Nicola Wealth Management 

Do you find your financial interests conflict with your societal values? Have you wondered exactly how it is your investments are turning a profit? In a world where the power of the almighty dollar holds great influence, a growing number of investors are carefully choosing how they use this power through the practice of Socially Responsible Investing. In this issue of Tactics, Dr. Peter Mortifee gives us an introduction to the world of SRI and explores the concept of “profits with principles”.

As an investor, I previously gave little or no thought
to the role my personal values and principles might play when it came to investment decision-making. Apart from having some notion of my investment objectives and risk tolerance, my bottom line was achieving a good financial return and making some money. Perhaps you can relate. However, over the last several years I have been challenged by an unavoidable question: “What impact do my investment decisions have on the world around me?”

I’m confronted by the truth that the way I (and each of us) invest money has a real and meaningful impact on social and environmental issues that affect all of us. Who do I want to lend my money to? What kind of companies do I want to own? What industries do I not want to support? Furthermore, increasingly in today’s world the relationship between environmental and social issues and investment risk and return is one that can no longer be excluded from financial/investment analysis.

In this edition of Tactics, we have a look at the rapidly expanding world of Socially Responsible Investing (SRI) – we explore what it is, review some of the factors affecting the astounding growth of SRI assets in Canada in recent years, discuss why SRI should be important to you as an investor, and provide evidence that SRI results are profitable and deserve your attention.

What is SRI?

Throughout the universe of Socially Responsible Investing, one basic tenet applies: investment decisions are made taking into consideration some pre-determined values-based principles, which usually pertain to environmental, social and/or governance issues.

Many terms are used interchangeably with SRI, including:

  • Ethical Investing
  • ESG (Environmental; Social; Governance) Investing
  • Principled Investing
  • Responsible Investing
  • Sustainable Investing
  • Triple Bottom Line Investing (financial, social, environmental)
  • Values-based Investing

Although SRI can be traced back to Victorian England (primarily to the early Quaker pension funds that restricted investments in armament manufacturers), it wasn’t until 1986 that the first SRI mutual fund was launched in Canada by the Vancouver City Savings Credit Union. This and other early SRI mutual funds were based on the simple approach of negative screens, which predominantly eliminated investments based on an undesirable record with environmental sustainability, human rights, worker rights and/or corporate responsibility.

Since that time, SRI in Canada has undergone dramatic change and expanded considerably to include: positive screening, community investment, socially responsible lending, corporate engagement and proxy voting, and sustainable (or social) venture capital. This reflects not just a change in society’s attitudes toward corporate responsibility, but a deeper understanding of the relationship between environmental and social issues and investment risk and return – a relationship excluded from traditional financial analysis.

Whatever we call it, SRI is not a black and white issue. Incorporating SRI principles into our investment decision-making represents a ‘gray’ comfort zone that each of us must arrive at independently with our advisors.

SRI Strategies

Over the last few decades, investors have asked themselves: “How do we assess social responsibility and ensure that our investments are socially responsible?” A number of SRI approaches have evolved which are now readily available to investors.

Negative Screening
This approach looks at excluding investments in companies that go against certain values-based choices defined by investors. Examples include companies involved with tobacco, alcohol, nuclear power, weapons manufacturers and those with poor environmental performance, human rights violations, and/or poor employee relations.

Positive Screening
Positive screening reflects a desire to include particular companies or sectors because of perceived social or environmental benefits. An example includes alternative energy income trusts that employ positive screens to invest in this particular sector.

Community Investment
This involves the placement of capital into local loan or equity vehicles targeting community development or serving low-income or disadvantaged groups. Community investments are motivated out of a desire to improve the economic, environmental and/or social development of particular communities.

Socially Responsible Lending
A unique form of lending, Socially Responsible Lending subjects potential borrowers to specified social and environmental screens. The screens are based on pre-determined values-based choices about the appropriate uses for investment capital, and ensure corporate and commercial borrowers are operating in a socially responsible manner.

Corporate Screening and Proxy Voting
This involves the use of shareholder power (“activism”) to influence corporate behavior through corporate communication, shareholder proposals, proxy voting policies and divestment. Historically, corporate engagement was based simply on risk and return considerations rather than a values-based approach. However, in recent years many institutional investors have adopted a much more aggressive stance on environmental, social and governance issues and are voicing their concerns accordingly.

Sustainable (or Social) Venture Capital
This strategy involves the placement of funds primarily in private investments outside the public markets. Such investments are in enterprises that contribute to certain values-based social and/or environmental outcomes. Examples include start-up firms and small businesses that produce products or services that optimize the use of natural resources while reducing environmental impact.

The Astounding Growth of SRI in Canada

Across the globe, SRI is becoming a phenomenon that is pushing corporate investment principles forward. In 2006, the United Nations promulgated its Principles for Responsible Investment. Convened by the Secretary General and developed by an international group of institutional investors, these principles were a response to the emergent views among professionals that environmental, social and corporate governance (ESG) issues can significantly affect the performance of investment portfolios.

To that end, Canada has taken a confident step forward in its SRI. In March of 2007, the Toronto-based Social Investment Organization ( reported in Canadian Socially Responsible Investment Review 2006 that Canadian SRI assets (the combined retail mutual fund market and the institutional investment market) have increased from $65.5-billion in 2004 to $503.6-billion by the end of 2006 – an increase of more than 668%! (Fig.1). Put another way, in two short years, SRI assets in Canada have risen from a market share of less than 4% of all assets under management to an astounding 20%.

Value of Values

Summary of SRI Assets in Canada ($-billion)

Source: Canadian SRI Review 2006, Social Investment Organization, March 2007
Figure 1

This remarkably rapid increase has been fueled by substantial public interest in issues such as climate change and global warming and how that affects the futures of our economies, our planet and our children. Among other issues of concern are HIV/AIDS, international human rights and the geopolitical ramifications of our reliance on non-renewable fossil fuels.

However, the single biggest factor contributing to the recent growth is large pension plans embracing SRI policies. SRI Pension fund assets in Canada have risen from $27.6-billion two years prior to $446.2-billion at the end of 2006, a more than 15-fold increase! (Fig.1). With Canadian heavyweights such as the Canada Pension Plan (CPP) Investment Board, the Caisse de Depot et Placement du Quebec, and the British Columbia Investment Management Corp. endorsing the United Nations Principles of Responsible Investment, it’s pretty tough to argue that SRI is a passing fad or trend. It’s not just altruism that’s driving retail and institutional investors to SRI products; it also makes good business sense.

Jantzi Research: Investing for Profits with Principles

A more extensive analysis of the quantitative impact of SRI decisions on financial performance is beyond the scope of this newsletter (for greater detail, visit Suffice it to say that current evidence now clearly supports that good financial returns need not be compromised through SRI. Indeed, the opposite may well be the case (see Figs. 2 & 3).

Canada’s leader in social investment analysis is Jantzi Research Inc. (, an independent investment research firm formed in 1992 by Michael Jantzi. The firm evaluates and monitors the ESG performance of global securities with a focus on the Canadian market place. Jantzi is the goto firm for mutual funds, pension funds, money managers, investment advisors, foundations, religious orders, governments, and others who seek to integrate SRI and ESG criteria into their investment decision-making process.

As part of its objective to offer benchmarks and evaluate SRI performance over time, on January 1, 2000 Jantzi Research launched the Jantzi Social Index (JSI). The JSI is a market capitalization-weighted common stock index consisting of 60 Canadian companies that pass a set of broadly-based social and environmental screens. Since inception, the index has outperformed both the S&P/TSX Composite and the S&P/TSX 60 (Fig. 2).

A Meaningful Return
Performance of the JSI vs. the S&P/TSX Composite and S&P/TSX 60
Figure 2

Jantzi Research also utilizes its Best-of-Sector™ (BoS™) methodology. By evaluating each company in relation to its industry counterparts, investors can avoid making whole sectors ineligible for investment, and can therefore continue to invest in companies across all sectors of the Canadian economy. The BoS encourages positive corporate change and also provides an incentive for companies in sectors facing sustainability challenges, such as Oil and Gas, to improve their performance.

The United States’ equivalent of Michael Jantzi is Amy Domini, the creator of the Domini 400 Social Index (DS 400) which, like the JSI, is a benchmark of large companies that are considered socially responsible in the United States (Fig. 3). Once again we see evidence of an SRI index outperforming the broader market. Amy Domini is the Founder and CEO of Domini Social Investments ( and author of several books, including Socially Responsible Investing. In 2005, Time magazine named her to the Time 100 list of the world’s most influential people.

SRI is here to stay. Its principles are being adopted by the smallest to the biggest investors in our land and it is proving that due diligence in investing now means more than just evaluating the financial bottom line. SRI is showing us it is possible for our investment decisions to not only be aligned with our personal principles, but also deliver superior financial results.

There are numerous ways for investors to learn about and participate in SRI. For the motivated, the “SRI in the Rockies” conference ( is one of the premier annual gatherings of socially responsible investment industry practitioners and investors in North America. This year’s conference (October 26 – 29, 2008) will be held in our own back yard at the Fairmont Chateau Whistler.

Whatever we choose, we must look to our financial advisors to provide us with the information and guidance to achieve the financial objectives we strive for, while aligning our money with our principles.