More pensions warming to SRI

The phenomenal growth of SRI assets in the pension world is creating a snowball effect, as traditional barriers collapse, according to Canadian pension experts.

The Social Investment Organization reported earlier this year that SRI assets in Canada had ballooned to more than $500 billion as of June 30, 2006, up from just $38 billion in 2004, mostly due to the addition of assets from large public pension funds.

“It’s really exciting to see how much things have changed in the past few years,” said Jane Ambachtsheer, head of Global SRI, Mercer Global Investing. Ambachtsheer was speaking Tuesday at a panel session on pensions and SRI at the Social Investment Organization’s biennial conference in Montreal.

“There’s a huge amount happening at the top levels of institutional investing in Canada and we are seeing smaller investors getting more active too,” said Ambachtsheer. “It’s harder [for pension funds] to say ‘We can’t do it, it’s illegal, we don’t have time, we’re too small, we’re not active managers.’ None of these are really valid excuses anymore for not looking at environmental, social and governance issues.”

Susan Enefer, manager of corporate governance for the British Columbia Investment Management Corporation, agreed with Ambachtsheer’s conclusions.

“If you ignore ESG issues, you are not acting in the best interests of your client,” said Eenefer, whose pubic sector pension plan is the fourth largest in Canada, with $85 billion in assets and 375,000 members.

However, ESG issues must be approached from a strictly financial perspective, she added, that is, as a means to deliver pension benefits to members. Still, things like climate change are material financial issues, Enefer said.

“We’re asking companies for their strategic plans on environmental issues and we expect them to be well-governed and to establish human rights policies, no matter where they are located in the world,” she added.

At the CPPIB, with assets of more than $116 billion, ESG factors are approached from a risk/return point of view, said Brigid Barnett, the board’s manager of responsible investing. “But we believe that these factors have a positive influence on long-term returns.”

Although the CPPIB prefers private dialogue with companies, it is currently focusing on climate change, the extractive industries and executive compensation, she revealed.

From a legal perspective, ESG risks are material to investments, so they cannot be ignored; they must be considered in the same way as any other risk, said Murray Gold, a lawyer with Koskie Minsky who specializes in pensions. In the past, some pension fund managers argued that ESG factors were outside the traditional realm of modern portfolio theory and therefore not consistent with fiduciary obligations.

Although that notion appears to be a thing of the past, pension fund managers still have be careful, Gold warned. “Pension funds, at the end of the day, are set up to provide financial benefits to members. They are not cause-driven, they are financial trustees. So where ESG advocates would get into trouble is if we confused these two paradigms.”

“If pension funds start to adopt policies not because they fit within the risk/return framework, but because they are good thing for the world at large or our community or society, you will run into trouble.”

Doug Watt is a Toronto-based freelance journalist.

(05/30/07)