Popularity eludes SRI funds

(June 13, 2005) Industry executives are taking a critical look at the state of socially responsible investing in Canada. And it’s not a pretty picture, particularly on the retail side. What’s more, it’s unfair to place the blame on advisors, says Gary Hawton, president of Meritas Mutual Funds.

Hawton says by his reckoning, SRI has gone from 1.3% of the overall mutual fund market five years ago to 0.8% today. “We’re not competing for a piece of the pie, we’re competing for a few crumbs,” he said on Monday morning during the opening panel discussion of the Social Investment Organization’s biennial conference in Toronto.

“I’m not convinced we are on the right path to break through to mainstream investors. I think we may have made SRI too complicated,” Hawton added, noting that the movement has moved away from its traditional emphasis on screening investments, to other issues, such as proxy voting and shareholder activism, which may be difficult to understand for average investors.

More CSIC 2005 Coverage:

•Advisors form SRI marketing group •Canadians not connecting corporate social responsibility to social investing •Popularity eludes SRI funds •SRI: Learning from the U.K. experience •Talking to Clients: Socially responsible investing

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And he says while no SRI firm wants to return to pure screening: “We need to review our roots. Have we become too judgemental?

“I’m certain that SRI can change lives, but I’m worried that our efforts are poorly understood by mainstream Canadians,” he said.

Hawton’s somewhat bleak presentation was echoed by Bob Walker, vice-president of research at Ethical Funds, who said that SRI was “missing in action.”

“We need to be viewed as players,” Walker said. “At a high level, SRI is seen as irrelevant. We need to establish trust, credibility and presence.”

And while the SRI movement has a great record of achievement on transparency, accountability and shareholder activism, none of that work is in the public view, he said.

“We have to invest in research and bring it down to a level people understand. And we need to demystify our evaluation methodologies for advisors.”

Advisors are often viewed by SRI advocates as a roadblock, since it’s widely believed they don’t discuss social and environmental investment options with clients. But Hawton says he’s concerned that advisors have become scapegoats in the debate over why SRI has failed to break through to the mainstream.

“As fund companies, have we given them what they need to talk to investors?” he asked, stressing that there needs to be more cooperation in the industry.

In a question-and-answer session following the panel discussion, SIO president Eugene Ellmen said he still believes that advisors are not discussing SRI options with clients in a meaningful way. “So mainstream investors never hear about SRI and never have the chance to evaluate it on its merits,” he said.

“We’ve spent a lot of time trying to reach the advisor market and I think we’ve found more openness,” Hawton responded. “So I’m not sure this is their [the advisors’] fault. We may need to do more scripting for advisors who aren’t in this to say, for instance, here are three easy bite-sized pieces to move from a level of interest to explanations and action.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com

(06/13/05)

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