The diffuse effects of socially responsible investing by some labour-sponsored funds are difficult to plot and, needless to say, there is no empirical work yet available on this topic. Much depends on the rigour of fund directors and officers in applying criteria as they determine investments and on their conscientiousness as long-term minority (or majority) shareholders. Of course, such interaction is conducted on a private and confidential basis which is vital to relationships with investee companies.
Apparently, rejections of prospective investments because of questions raised through social auditing takes place only rarely. Over ten years, there have been only a handful of such outcomes for the Fonds de solidarité. These have been triggered, for example, by evidence of heavy pollution and other environmental liabilities.Endnote 38 Fund officers report that most problems are resolved amicably in bilateral negotiations prior to conclusion of the investment agreement.
Research into the performance of ethical and environmental mutual funds tends to show that there is no obvious incompatibility between financial and social returns. On the contrary, the American Domini 400 Social Index, a multi-criteria ethical investment index which tracks the progress of 400 screened commercial concerns, has consistently done as well or better as the Standards and Poors 500 index for unscreened concerns.Endnote 39
Similarly, new research suggests that the social agenda of labour-sponsored funds may actually boost overall investee firm viability and competitiveness. For instance, the CSTIER study refutes the conventional perspective that social auditing is overly costly or intrusive for an investee company. On the contrary, employers supported by investments of the Fonds de solidarité and Working Opportunity, viewed the procedure as contributing to an improved performance by drawing attention to all aspects of the organization. A good rating by a fund, say employers, also enhances the corporate image and legitimacy before the public at large.Endnote 40
It was mentioned above that small business financing may be particularly troublesome in regions and communities that are rural, remote, and of a low degree of industrial diversification. Indications are that this occurs chiefly in eastern, western and northern parts of Canada.
One study of the venture capital sub-market in Newfoundland and Labrador, for example, concluded that it was weak and ill-prepared to serve local economic development, largely because savings and investments were migrating out of the province.Endnote 41 A more recent study (1994) found that circumstances had not improved appreciably over the years for Atlantic Canada as a whole. The Atlantic Provinces Economic Council cited the lack of adequate market infrastructure as one cause of a continuing shortage in patient, high risk equity in the region.Endnote 42