SOCIALLY RESPONSIBLE INVESTING: THE MATURING OF FINANCIAL ANALYSIS
Can one get rich by being responsible? Yes, one can: “To look beyond the investment bottom line does not imply forgetting profits,” says Brenda Plant. To help shed light on this issue, she reviews the state of socially responsible investment in Canada, the evidence regarding its economic performance and the strategies available to implement it. She observes that the financial community remains skeptical and ill-prepared to provide that type of service and that, overall, Canada is lagging behind. To keep pace with other jurisdictions world wide, she recommends that Canada amalgamate the multitude of securities ...view middle of the document...
Socially responsible investors see the Enron scandal in the context of the systems that allowed it to happen right under our noses. These scandals give all investors the opportunity to advocate for some fundamental systemic changes. Socially responsible investing offers investors some useful tools to help close the gap between business as usual and the contemporary global challenges of social and environmental responsibility. And while the government should avoid being overly interventionist, it has an important role to play in making capital markets more responsive to some complex social and environmental issues. Investment capital does not neutrally make us money to put our children through university or provide us with security in our retirement. Social and environmental exter-
nalities are not adequately priced, valued or disclosed in the market. Market imperfections cause anti-social distortions for which we nonetheless pay in other aspects of our lives, be it in the form of increased personal taxes (or cuts in government services), the need to purchase personal protection products like air purifiers for the home, or reduced overall health and quality of life. The marketplace, with its quarterly obsessions, simply isn’t designed to be especially effective in promoting positive and innovative initiatives that create long-term value. To look beyond the investment bottom line does not imply forgetting profits. It involves seeking modes of wealth creation that pursue personal, social and ecological benefits in addition to financial gains. Social and environmental issues are not disconnected from financial value. As the Conference Board of Canada points out, intangible assets, like brand and reputation — which are themselves increasingly connected to social and environmental performance — now compose over 50 percent of a company’s value. The exposure to such intangible assets has brought increased risks to investors, and neither the risk nor the true value of the firm are captured in traditional financial metrics.
emerging area, by means of which example — the largest pension fund in hile it has existed for centuries, investors can encourage eco-innovation. the US, with US$180 billion under socially responsible investing Finally, an increasingly prevalent management — engages in a number (SRI) is now occupying new and wider SRI strategy is to use the leverage of of exclusionary screens. As of 2000 space, in response to some of the limitashare ownership to improve compathey decided to exclude tobacco stock tions of conventional financial markets. nies’ social and environmental perfrom the portfolio due to the unpreceA number of individual and instituformance. This strategy is often called dented amount of legal, regulatory and tional investors, such as charitable foun“shareholder engagement,” and it legislative action in the industry, which dations, religious organizations,...