Have you ever wondered whether your RRSP might be a little bit toxic? If you have concerns that your investments may not be truly reflecting your values then this space should be of interest to you. In this column, I hope to go a little beyond the lip-service that the financial services community normally pays to ?socially responsible? or ?ethical? investing, and give you some ideas about where you might save your money and actually feel good about it.
Socially responsible investing can be a complex matter and one that means something unique to each of us. We all hold our own set of personal values. It can mean screening out companies that you find objectionable but have found a way into your RRSP or mutual fund. These may be companies with a poor human rights or environmental record, or perhaps they are involved in weapons manufacturing or sub-contracting. Or it can mean that you would like to emphasize community investments in your portfolio. Perhaps you would like to use your shareholder voting rights in an attempt to positively influence corporate behaviour. These are all aspects of socially responsible investing.
The demand for socially responsible investments in Canada is predominantly met through the offerings of three or four mutual fund companies. These include the Ethical Funds family, Acuity Investment Management (provider of the Clean Environment Funds), and a new lineup from Meritas Funds. The ?socially responsible? tag can also be found at the Investors Group Summa Fund, Mackenzie?s Global Ethics Fund, and BC?s own Working Opportunity Fund. If you think your choice of ethical funds in Canada is on the skimpy side then I would have to agree with you. And if you are prone to bashing our American neighbours, it should be noted that they are miles ahead of us when it comes to this approach to investment management.
The feedback I have received from many of my clients indicates to me that many so-called socially responsible funds could go further in screening out companies that investors find objectionable. ?Just what are these banks and oil companies doing in my portfolio? is a question I often hear, and it?s a good one. Remember, ethical investing is a highly personal endeavour. The approach of the fund companies is often to include companies that may be operating in an inherently ?dirty? industry, but which have adopted the best practices in their sector. Suncor Energy has a significant stake in the Athabasca tar sands project, yet they are also industry leaders in the development of alternative energy sources and have an excellent record of working with aboriginal communities affected by resource extraction. You will therefore find Suncor included in many socially responsible portfolios.
For those of you who would like to move beyond the funds currently being offered, it is also possible to construct your ethical portfolio from individually-chosen stocks, bonds, income trusts, etc. It would help of course if you can accept that profit-making and social justice are not mutually exclusive considerations. If so, then in this and subsequent issues of The Word, I would like to shine a little light on some investments that you may feel worthy of inclusion in a socially responsible portfolio. I should stress that just because I believe that a company deserves a place in such a portfolio does not mean that I think it would make a good investment at current prices. Best to consult your own financial advisor for such an opinion, or feel free to contact me directly, or if you feel capable, conduct your own research into the appropriateness of these ideas for your savings.
CLEAN POWER INCOME FUND Ticker symbol: TSE CLE.UN
The Clean Power Income Fund is an unincorporated open-ended trust established to invest in 10 power generating facilities that use environmentally preferred energy sources. The income generated by these facilities is distributed to unitholders. The fund intends to make annual cash distributions of $0.925 per unit, paid quarterly. With a recent price of $10.20, this distribution represents a return of approximately 9% annually.
According to Standard and Poors rating agency, ?the fund holds a diversified portfolio of electricity generating assets. The plants vary by fuel type (biomass, hydro, and wind) and geography (located in Alberta, British Columbia, Ontario, Wyoming, and Colorado). In addition, the dispersal of hydro assets helps minimize hydrological risk. This diversification is among the best of all power funds. Long-term power purchase agreements exist for virtually all energy produced with an average term to maturity of almost 20 years. All of Clean Power’s contracts are with strong credits. These strengths, along with exceptionally low debt leverage and a C$10 million-C$12 million cash reserve (the largest of all power funds), should minimize factors that could adversely affect cash flow and distribution variability?.
The Clean Power Income Fund is the first fund of any type to be certified under the Government of Canada’s Environmental Choice Program and is eligible to use the EcoLogo in recognition of superior environmental performance and a continuing commitment to environmental excellence.