Socially Responsible Investing and the Christian Faith Community

By David A. Nock

Research by Kurt Bowen as reported in his Christians in a Secular World: The Canadian Experience (2004) has established that the Religiously Committed ( defined as those who value religion and attend services at least monthly) contribute more in volunteering and charitable donations than the so-called Seekers ( those who value religion but who rarely or never attend church) and the Non-Religious (who do not value religion and who rarely or never attend church). In fact religious commitment ranks as the Number One social variable among a host of others in affecting these desirable behaviours. Generally Christians acknowledge the need to help others as an integral part of their faith. “Fulfilling religious obligations” and a feeling that they “owe something to their community” were important motivators for committed Christians. Bowen reports that “…I did find a widespread conviction among those with whom I talked that religious faith calls for service to others”(p.164).

A growing percentage of us hold investments in the stock market, directly or indirectly through mutual and pension funds, a trend which is all the more marked with the aging of the population. Total investment in the mutual fund industry in Canada is truly awesome. How many of us have thought that our investments may also be an opportunity for us as to act in a Christian manner by supporting industries that avoid harmful behaviour and that accentuate the beneficial? This is suggested in a graphic advertisement emanating from Meritas Funds which shows a blood –red polo shirt with the caption, “Made by 11-year old girls working 12-hour days in 100-degree heat and 98% humidity.” The advertisement asks the question, “If you wouldn’t want it in your closet, why would you want it in your portfolio?”

Generally speaking, the majority of financial advisors have not brought the option of socially responsible investing to investors’ attention. This is partly because until recently there have only been a handful of “SRI” funds available in Canada and many of them have been rather mediocre. The situation has been different in the United States where socially responsible investing had taken off in a big way sooner. In the US, Morningstar (the major mutual fund rating service), found that socially responsible funds are more likely, rather than less likely to merit four and five star ratings as compared to mainstream funds which disregard the principles of socially responsible investing (as reported in the Canadian Investment Guide 2005, p. 24).

However this lagging behind of SRI funds in Canada may be coming to an end. The CIG 2005 just referred to had an informative article by Charles Oberdorf headlined “Investing With Cause: You want to make money, but you’d like to make a difference, too. Socially responsible investing does both.” The Canadian Investment Guide 2006 also reported on SRI funds in its section on specialty funds in an article by Lara Hertel entitled “Getting Specific: Whether you are pro-Japan or anti-tobacco, there’s a fund for you.” A sign of the maturation of SRI funds in Canada is that The Canadian Investment Awards (the focus of the Canadian Investment Guides) now presents a special award for the SRI category. Referred to as the “Imagine” Award for SRI funds, it went to Ethical Canadian Dividend. Another SRI fund, Ethical Special Equity, won the gold medal in the Canadian Small-Cap sector, ahead of a field comprised entirely of non-SRI funds except for the winner! As of 2006, there exist just under 70 SRI funds in Canada with 54 affiliated with the Social Investment Organization of Canada. Hertel’s article talks about investors “flock[ing} to SRI funds “because they believe in the underlying mandate of the investment and they want their portfolios to reflect their beliefs”(p.71). Gary Hawton, Meritas CEO, comments that, “It’s a testament to the fact that most SRI funds are chasing high returns, but doing so responsibly”(p.72). Don Rolfe, CEO of Ethical Funds, states that “Holding an SRI will not adversely affect your portfolio”(p.72)

More recently a useful article by Rob Carrick on SRI funds appeared in the Globe and Mail, July 15, 2006, titled “Advisors can guide you on ethical path”. The article summarized some of the financial specifics on a handful or two of the most promising SRI funds in several categories. The headline related to Carrick’s highlighting of the network of socially responsible financial advisors who “could be just the thing to help you follow your conscience as an investor.”

Carrick’s article points out that, “A major challenge for socially responsible advisers and investors alike is finding funds and stocks that deliver decent returns while accomplishing their SRI mandates.” SRI adviser Brian Pinch does point out that “The one place where there’s no problem at all is Canadian equity funds.” This would include several “passively managed” index funds which track the Canadian market in addition to the more normal Canadian equity entries which utilize so-called active management. Also in the Canadian equity category should be added the Equity small-cap and dividend “stars” referred to above.

No doubt the best place to find out more is the website for the Social Investment Organization at: www.socialinvestment.ca . This site provides information and links on the various fund families that are members, and detailed information on the various SRI funds by category .Conveniently the chart includes the average returns in each category for various time periods for all funds available through the Canadian market. The reader can see quite readily which SRI funds are leading or lagging compared to the mainstream non-SRI funds and by how much. Other information includes links to socially responsible advisers across Canada. By following the links to the various members, it is quite easy to get a fast education into the history, philosophies, and actions of the various SRI-connected firms and further information on the various funds themselves.

Generally speaking, SRI firms utilize “screens” which help them avoid investing in firms which are heavily involved in certain forms of questionable ethics (Positive screens for socially responsible investing are also used). Of course, many would be quick to point out that ethics and morals vary according to one’s personal viewpoint and not everyone agrees on the same issues (this is stated in Gordon Pape’s 2004 Buyer’s Guide to Mutual Funds, p. 187). Thus not all SRI firms agree on a completely identical list of positive and negative behaviours. However certain “suspects” do tend to designation as ethically questionable: tobacco, gambling, the defence/weapons sector, alcohol, environmental degradation, human rights abuses, labour relations (including children), nuclear power, and pornography. Oberdorf’s article in the CIG 2005, p. 28, points out that military screens, and screens relating to human rights and the environment are actually more likely in Canadian SR funds than in American (in both Canada and the US, tobacco is targeted about equally)

Some SRI firms initiate discussions with various firms, asking them to reconsider some of their practices and there may information made available by those SRI firms about how far or effective those discussions have been. Other concerns addressed by SRI firms may include local community development and the attempt to reform corporate governance or to bring about social or environmental change using shareholders’ influence (see CGI 2005: 27-30).

It seems to me that Socially Responsible Investing may provide one of the more accessible forms of concern for others and the wider community that a Christian might utilize. This is especially true in that the greying of the population generally is even more obvious when it comes to the committed church population (this demographic imbalance may be regretted but is currently a reality). Presumably the many aging members of the religiously committed have sizable pools of capital available for investments of various kinds. Because SR investing has been considered to be rather marginal by the mainstream financial industry until recently, many Christian investors may not even be aware of the opportunities that exist for socially responsible investing. A visit to the www.socialinvestment.ca website will overcome this deficiency.

I would not recommend Christian investors go into SR investing without due prudence. Apparently Canadian SR options are still less developed than in the United States. However among the various SRI funds, there are genuinely impressive choices and the two awards that SR funds received at the mainstream mutual fund awards show in 2005 point in this direction (The Canadian Investment Awards: see www.investmentawards.com). Many of us already have non-SR investments and it will take some time for many of us to re-orient our portfolios to SRI. The point is to become aware of the SRI alternative and to make a start at making changes as soon as possible.

This article began with a description of an advertisement from one particular SR firm which I found particularly moving (perhaps because I wear red polo shirts!). Surely it is easy to link socially responsible investing to our faith. We might start with Jesus’ parable of the Good Samaritan in which the Samaritan helps out a Jewish traveller who has been has been robbed and left for dead while two Jews, including a priest pass by, afraid that they may ritually defile themselves. Of course comprehending this story demands that we understand that Samaritans and Jews were hereditary enemies, like so many in the Middle East to this day. This is the occasion of Jesus’ statement of the Golden Rule that we should “love your neighbour as yourself” in conjunction with our love of God. Jesus’ questioner, a learned expert in Jewish religious law, “wanting to justify himself” in front of others, tries to trap Jesus with a tricky question about “who is my neighbour?”(Luke 10). After recounting this parable, Jesus asks “Which of these three, do you think, was a neighbour to the man who fell into the hands of the robbers?” The expert in religious law is compelled to respond, “The one who showed him mercy.” Jesus said to him, “Go and do likewise.’” Perhaps this parable from Scripture helps us interpret the advertisement described above placed by Meritas. Yes, those 11-year old children working 12-hour days in 100-degree heat and 98% humidity are indeed our neighbours even if we never see them in the sweatshops of the Third World.

POSTSCRIPT
Since I finished the above article on SRI (ethical) investing, I have become aware of the Corporate Knights organization and magazine which encourages business to foster social responsibility. One way they do this is by an annual rating of SRI funds. Each individual fund (with a total of 43 funds analyzed) has an overall award of "shields" with five the highest. This award in turn is based on a 50% allocation for fund performance and 50% for living up to its social responsibility commitment. A considerable amount of useful information is included including the particular ethical screens which are used in stock selection for various SRI-involved companies. The "Corporate Knights SRI Funds Ranking" has been available since 2003 and that for 2006 is now available. This information may be accessed at: www.corporateknights.ca