Ethical’ investing shows remarkable growth

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Social investment is not a new idea. Forty or 50 years ago, Canadians were putting their money into social grassroots movements to help create agricultural, housing and worker co-operatives.

What is new is the remarkable growth over the past 10 years of “ethical” or “socially screened” investing.

Simply put, this type of investing is the placement of money in mutual funds, stocks, bonds or other securities or investments that are screened to reflect ethical, environmental, social, political or moral values.

The Ethical Growth Fund is an example. Launched in 1986 by Vancouver City Savings Credit Union with about $15 million, the fund now has more than $600 million in assets and is the flagship of Vancouver-based Ethical Funds Inc., the largest family of socially conscious mutual funds, with $1.5 billion in assets.

Ethical Funds Inc. says it will not invest in companies involved in the production of military weapons, tobacco, nuclear power and those with unfair employment practices, poor environmental records or that support repressive regimes.

Once the ugly duckling of the investment world, ethical funds are beginning to live down the idea that you cannot combine growth with ethical considerations.

“In a time when the drive for ever higher profits has become all-consuming, it’s refreshing to find that making money and social responsibility are not mutually incompatible,” investment adviser Gordon Pape of Toronto said as he chose Ethical Growth as his 1998 “fund of the year,” calling it one of the top-performing Canadian stock funds around.

It all goes to prove, Vancouver’s Citizens Bank of Canada says in its literature, that “profitable investments and a healthy conscience can grow together.” Earlier this year, the bank established by the Vancouver City Credit Union started offering an additional ethical investment option in the form of five-year term deposits based on the performance of 22 companies that meet a handful of corporate-ethics standards.

In the last 10 years, the ethical investment movement has grown from a fringe activity to a recognized mainstream practice in North America and Europe, said David Nitkin, founder and president of a Toronto consulting firm, EthicScan.

From a base of a small number of investors with less than $100 million in assets, it is estimated the movement has grown to something like 150,000 investors with about $3 billion invested in 14 socially screened mutual funds and five broadly screened labour-sponsored funds.

While Mr. Nitkin considers ethical funds a “serious way to link commerce and conscience,” he also calls for a more critical look at what is marketed as being ethical. The major question about ethical investing, he said, is not whether financial performance is superior, but whether any company in a screened portfolio is indeed socially responsible.

“People need to be very careful,” Mr. Nitkin said in an interview.

He said standards should be established for fund managers marketing ethical assurances, so that those interested in and committed to ethical investing are not hoodwinked.

Michael McAteer is a Toronto freelance writer.

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