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May 08, 2009

Canadian SRI Assets Increased to $609 Billion in 2008
    by Robert Kropp

Report by the Social Investment Organization finds that SRI has maintained its market share of almost 20%. -- A recently published report by the Social Investment Organization (SIO) found that in the past two years, assets invested according to socially responsible guidelines (SRI) have increased by 21%, from $503.6 billion to $609.2 billion. The numbers indicate that SRI is maintaining a share of assets under management in Canada of almost 20%.

SRI Mutual Funds GuideThe SIO is a national nonprofit association for the SRI industry in Canada. Its more than 400 members, which serve more than a million Canadian depositors and investors, regard SRI as a useful investment tool to enhance returns and reduce risk by incorporating environmental, social, and governance (ESG) factors in their portfolio management strategies.

The report, entitled Canadian Socially Responsible Investment Review 2008, does not reflect the market downturn of the second half of 2008 in its statistics. However, it does indicate that such managers of large national pension plans as the Canada Pension Plan Investment Board (CPPIB) "Are sticking with SRI criteria in their investment strategies," according to Eugene Ellmen, Executive Director of the SIO.

Canada has a system of national pensions for every working Canadian citizen that adopted a policy on responsible investing in 2006. The CPPIB manages $108.9 billion in assets, representing the pensions of 17 million Canadians.

"In fact, we noted a growing sophistication in the use of such techniques as corporate engagement by the major pension funds," continued Ellmen. "The CPPIB measures performance in terms of years and decades, not in months or quarters, and the pension funds have adopted SRI criteria because the SIO and other SRI organizations have convinced them that responsible investment is an effective long-term risk strategy."

Ellmen was careful to point out that the Canadian pension funds do not yet apply screening for ESG criteria in their investment strategies, but apply ESG criteria in such matters of shareowner advocacy as proxy voting and engagement with companies.

"I wish the pension funds were going into their portfolios and doing ESG weighting," said Ellmen. He pointed out that this was an area in which the SIO and other organizations continue to work with the pension funds, and expressed confidence that progress toward this end was being made.

Canada maintains a significantly larger share of SRI assets under management than the US. This is largely attributable to the investment policies of the national pension plans in Canada, according to Ellmen.

According to the 2007 Trends Report published by the Social Investment Forum, a US-based nonprofit association dedicated to promoting the practice and growth of SRI, $2.71 trillion, or 11% of total assets under management in the US, use "one or more of the three core socially responsible investing strategies—screening, shareholder advocacy, and community investing."

In Europe, according to research conducted by the European Social Investment Forum (Eurosif), an association of national social investment forums in Europe, total SRI assets under management reached $3.55 trillion, or 17.6% of market share, as of December 31, 2007.

The SIO report distinguishes between core SRI strategies and broad SRI strategies. Core SRI strategies, according to the report, consist of screening based on exclusionary or inclusionary criteria, community investment and social finance, and socially responsible lending. Core SRI assets totaled $54.2 billion in 2008, compared to $57.4 billion in 2006. Ellmen attributed the decrease to market conditions and not to a lesser dedication to SRI on the part of asset managers.

Most of the core SRI assets represent retail investment funds. According to Ellmen, "SRI is still a relatively small part of the retail market because it represents a relatively new activity that most asset managers, fund companies, brokers and advisors still feel uncomfortable with."

In addition, Ellmen continued, "SIO is tackling the lack of awareness on the part of investment advisors by developing an advisor education program."

The SIO report identifies broad SRI strategies as including the integration of ESG factors into stock portfolio analysis and management, ESG corporate engagement and proxy voting, and sustainable venture capital. Broad SRI assets in Canada totaled $555 billion in 2008, mostly represented by pension funds, compared to $446 billion in 2006.

In Europe, according to Eurosif, "Broad SRI strategies such as engagement and integration are frequently used by large institutional investors," and represent 81% of total SRI. Unlike the SIO, Eurosif includes simple exclusions in its definition of Broad SRI.

The Social Investment Forum's report on SRI trends in the US does not employ the same distinction between core and broad SRI strategies, but does note that assets in all types of socially and environmentally screened funds—which correspond to the definition of core assets used by the SIO and Eurosif—rose to $201.8 billion in 2007. Institutional investors that filed resolutions on ESG issues controlled $739 billion in assets in 2007, while community investing increased to $25.8 billion.

The SIO report concludes that "In spite of these difficult times, there is evidence that Canadians want their investments to pose solutions to global social and environmental issues." Ellmen cited research indicating that 54% of Canadian investors believe that socially responsible companies are more profitable than irresponsible companies, and 51% believe that social considerations are as important as financial prospects when making investment decisions.

"SRI has lessons to teach about long term risk management," Ellmen said.

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