The American Social Investment Forum reports that a huge and expanding proportion of money circulating in public securities exchanges in the United States forms part of a “socially responsible” investment portfolio. In 1997, this included well over $500 billion committed to portfolios that were screened according to “ethical” criteria, including those of a growing number of pension funds.
Ethical screens may be described as the application of exclusionary standards to asset allocations and, in most instances, common stock-picking. In the United States, criteria has been found to be linked to diverse social concerns — from traditional “sin” activities (e.g., alcohol abuse, gambling) to environmental protection, gender equity, human rights, labour issues and military production. The latter tend to be found in the investment screening policies of Canada’s $2 billion-plus ethical mutual funds.
This topic can mean different things to different people. For some, ethical criteria are essentially statements of principle intended to advise investment managers and prevent egregious errors. For others, guidelines must be applied more rigourously. It is argued by advocates of the latter that, to enhance corporate citizenship, timely divestment must occur, if necessary — a challenging maneuver for many pension funds — or coupling of screens with a strategy for managing assets and voting shares (also known as shareholder activism — see The Newest Activists. Screening can also be formal or informal. American pension funds have taken both approaches to excluding tobacco company stocks, seen in recent divestment/freeze initiatives of the Florida State Retirement Trust Fund and the New York State Teachers Retirement System.
Canadian pension funds have also shown interest in the philosophy and practice of ethical screening. For instance, the United Church of Canada Pension Fund is currently modernizing its guidelines after many years of applying to investing such standards as global human rights and sustainable development. In 1992, HOOPP similarly introduced four major criteria to its investment policy — ethical business practices, good labour relations, environment-friendly performance and a positive record on human rights. There is also private asset screening. Though specifically oriented to business concerns, Pensionfund Realty (see Pension Funds and Real Estate Investing) conducts an environmental audit on all potential property buys.
Most Canadian pension funds were first introduced to this topic in the 1980s when South African apartheid boycotts were of paramount interest. Since then, there appears to be increased discussion of the social concerns underlying ethical criteria in governing boards and committees. This is echoed in the OPSEU survey of labour trustees (see Investing and Managing Pension Assets in Canada,. Key proponents are unions, such as the Canadian Union of Public Employees that has been especially active in promoting investment screening on ethical grounds to public sector pension plans with affiliated members. American labour has taken the further step of initiating the Labor Sensitivity Index (1993) to highlight the screened stocks of unionized employers with positive records on assorted employment issues.
Sources: CUPE, Submission on Ethical Investment to the Trustees of OMERS, 1993; SIF and Co-op America, Tobacco’s Changing Context, 1998; Walker and Hylton, “SRI in Canada and the US” SIO Forum, March-April, 1998; CLMPC interviews.