Dual dividends

Cheryl Crowe has a unique job. As SRI specialist with Assiniboine Credit Union in Winnipeg, Crowe researches the social investment world, provides internal training and develops sales tools for the company’s 49 advisors.

“We’re positioning ourselves as experts in this area,” Crowe says. The strategy appears to be paying off. In 2007, Assiniboine added more than $8 million in SRI assets, bringing the company’s overall total to about $50 million. “We’ve been quite successful,” Crowe admits. “We doubled our sales from last year and more than 30% of our assets are SRI, which is significant.”

Crowe believes her job is oneof- a-kind, at least in the credit union system. But that doesn’t mean other credit unions aren’t involved in SRI.

Credential Financial, the national wealth management provider founded by Canada’s credit union system and headquartered in Vancouver, has nearly $11 billion in assets under management. About 25% is invested in sustainable sustainable or SRI products, says Credential senior vice-president and chief marketing officer Elaine McHarg.

It’s a similar story at Vancouver- based Vancity Credit Union, where about 20% of the company’s $2 billion in assets is SRI, says Paul Savage, the firm’s vice-president of investments.

Impressive numbers, considering figures from the Social Investment Organization show Canada’s entire retail SRI mutual fund universe is about $13.7 billion, or about 2% of the overall market.

If credit union members seem predisposed to SRI or ESG (environmental, social and governance) investment principles, a likely reason is the fact that credit unions are strongly involved and grounded in the communities they serve. And the deep roots of credit unions in Western Canada mean they can count a larger percentage of outdoorsy and environmental types among their client bases. In 2007, a survey Crowe fielded found 85% of employees and 79% of members wanted SRI options. Part of the attraction is that with SRI investing you get a number of different types of returns. “You get social returns, financial returns and environmental returns,” says Crowe. “You’re not just getting one type of return and people really get that when I talk about it in a presentation.”

Savage, whose company is the majority shareholder of SRI specialist Inhance Investment Management, says Canadians are willing to make lifestyle changes in order to become more environmentally friendly. They’re pro-recycling and they’ll trade in the SUV for a hybrid in order to make a difference. “Aligning their money to support those initiatives is a natural extension of that,” he says. Savage believes many Canadian investors are SRI-oriented without even knowing it. “If they had a choice to buy a stock, they probably wouldn’t buy a tobacco stock or a company that has an awful environmental track record. So people have values that are close to SRI.”

And the philosophy of credit union members extends to the advisor channel, McHarg says. “I think credit union advisors tend to be a little more focused on how community values get reflected in people’s financial choices.”

Gary Ko has been an advisor with Assiniboine for 15 years. He also thinks there’s a tie-in between credit unions and SRI. “In a lot of cases, credit union members like to think of themselves as different from the mainstream and that would apply to SRI as well,” Ko says.

There’s also a strong historical connection. In the 1980s, a number of SRI funds began to emerge from the credit union system. In 1986, they were brought together to create Canada’s first SRI fund, Ethical Growth, at the time owned and managed by Vancity.

“We were the first firm in Canada to offer SRI through Ethical Funds, which we founded. So it’s a big part of who we have been and a big part of who we are,” says Savage.

In the 1990s, Ethical’s ownership structure changed and the company moved into the credit union system. Today, it’s 50% owned by the Provincial Credit Unions Central and 50% by the Desjardins Group, itself a pioneer of socially responsible and sustainable investment in Quebec.

For a period of time, Ethical was the house brand, because credit unions didn’t have access to third-party mutual funds, McHarg notes. “Now they can sell anything they want.”

Still, Ethical dominates the SRI landscape in Canada, particularly within the credit unions. The Vancouver-based firm offers 11 mutual funds as well as the lifecycle Ethical Advantage Series, and has $2.4 billion in assets under management.

Ko says he works primarily with Ethical because he likes the company’s policies on things like shareholder resolutions and proxy voting. And he’s experienced with their product lineup. He even has Ethical in his personal portfolio. “I firmly believe in owning the products you sell,” he says.

Ko is an exception, but in general, advisors are often viewed as a stumbling block when it comes to growing SRI assets in Canada. Some advisors don’t like to raise the topic with clients, concerned about the reaction, or having to deal with questions they’re not prepared to answer.

Many credit unions are ahead of the game in this regard. They include SRIrelated topics in their initial client interviews, either through member questionnaires or Know-Your-Client forms.

Crowe’s position as an SRI specialist helps too. “We have members who are very committed to certain issues. So I’ll get a call saying a member is interested, and I’ll meet with them and talk about the issue and discuss SRI options.” The model has been so successful that Crowe, who also chairs the board of the Social Investment Organization, has received a number of calls from other Canadian credit unions interested in creating a similar position.

But an SRI specialist isn’t the only resource to get advisors up to speed. They can also receive SRI training through Ethical Funds, which has a proprietary one-day SRI training program with CE credits attached. The Social Investment Organization, which has made advisor training one of its key priorities, is also working to develop an accredited SRI training course for advisors.

Growing SRI in Canada remains a challenge. But McHarg says there’s been something of a sea change with respect to SRI investment attitudes. “It used to be an all-or-nothing proposition, where you either invested all your money in something like Ethical or you didn’t—now the model is more of a subcomponent of your portfolio. So maybe it’s 25% of your portfolio focused on a cause that interests you.”

Savage agrees. “We have to meet our members’ needs, so we need an investment for every need.” She says Vancity could focus exclusively on SRI, but that would shut out members who were not keen on the subject or didn’t think of it as a priority. Those people, he believes, would simply go elsewhere. “So we have to have the ability to meet all needs, not just the narrow niche. We would like that niche to be bigger. That’s our challenge. We like the general direction that it’s heading and ultimately we would like to do more SRI, not less.”

Of course, the choppy markets we’ve experienced over the last year haven’t helped. And although several of the big banks now offer SRI products, it’s not well advertised. “It’s a tough market right now, so everyone’s a bit cautious about investments in general,” says McHarg. “But Ethical is performing well, compared to its peers, so that’s a good message that there is value to be found.”

Regardless of the model, gaining market share is difficult even at the best of times in the mutual fund business, says Savage. “So when we’re looking at building awareness, we include an element of SRI marketing. That, combined with a discussion with our members, means that we should be gaining, over time, some market share.”

Despite numerous studies to the contrary, there’s still a pervasive myth that SRI investors have to sacrifice performance. But Ko says that’s easily dispelled by showing clients the numbers. “The performance is similar to other funds in the same category, but at the same time you can make a bit of a difference in your investments, so that’s the added value.”

As for the future of SRI in Canada, even the most optimistic advocate would admit there’s a lot of work to be done. “Canada is falling behind,” Crowe says. Regulatory changes in Europe and Australia have made it easier for advisors and those in the institutional sector to promote SRI. For example, U.K. pension funds are required to disclose how ethical, social and environmental issues affect their investment decisions.

Such requirements aren’t in place here. And with the glacier-like pace of regulatory reform in Canada, it’s unlikely we’ll see anything in the near future. But there are reasons for optimism. Several of Canada’s major pension funds now include social and investment criteria in their investment process, a major advance considering just a few years ago many of those same pension funds wouldn’t touch SRI.

On a smaller scale, advisors are winning new SRI clients. “Over time, there’s been a bit of a shift,” says Oko. “Initially, it was credit union advisors telling clients about it. Now, with exposure in the media and the green shift we are seeing, it’s more of a topic for clients, so a lot of the times they’re asking us about it.”

“I have one rep who sold $750,000 in SRI alone in the second quarter of the year,” Crowe points out. “He realizes it’s a niche market he can specialize in.”

Niche or not, Oko, whose book is about one-third SRI, says it’s always been a large part of what he does and will continue to be. “The future is bright for SRI funds.”