Feminine touch turns investments to gold

It’s like entering a boxing ring with one hand tied behind your back. Nah, too hostile.

It’s like… leaving half the ingredients out of a recipe. Or asking 10 people for opinions and only listening to five. Hmm. It’s like…

Oh, forget it. These stats don’t need any spicing up. Here’s the scoop: if your company has no women on its board of directors, it’s likely to perform worse than those that do. Yep, it’s that simple. More women on the board correlates to better financial outcomes.

The study was done by Catalyst (catalystwomen
.org), an organization that works to expand business opportunities for women. Looking at Fortune 500 companies, it compared the 25 per cent with the highest number of women directors to the 25 per cent with the lowest.

Here’s where the numbers speak for themselves. On average, the companies with the higher number of women had a 53 per cent higher return on equity. And a 42 per cent higher return on sales. And a 66 per cent higher return on invested capital. No matter what industry you look at—from health care to consumer staples to industrials—it’s a consistent story.

You’d think companies would take one look and start hunting for a little gender diversity. But here’s a sad number from a 2006 Stats Canada report: only nine per cent of directors at Canadian publicly traded companies are women. (And only 13 per cent of senior officer positions are held by women. Sheesh.)
Makes you wonder whether your investments are doing as well as they might, doesn’t it?

Dermot Foley wonders. But he doesn’t just muse about it like a columnist who can’t find a simile. The VP of strategic analysis at Inhance Investment Management, Dermot actually takes action. If a company Inhance holds shares in doesn’t have women on the board, Dermot will put forward a shareholder resolution to nudge them into action. (It works. What CEO wants a big discussion at a shareholders’ meeting about something that makes him look like a dinosaur and suggests less-than-average financial outcomes?) The most recent example was in January, when a mining company got a “nudge” letter from Dermot. The result? They’re now actively recruiting women for executive positions. If they’re successful, Inhance will withdraw the resolution. If not, it will go to all of the shareholders to be voted on.

Dermot points out that just over half of university graduates these days are women. If a company doesn’t have women right through the top of its ranks, it’s clearly not combing the entire field for talent—and that’s likely to impair performance in the long run.

“If you can attract the talent—and retain it—you’ll be the better company. You’ll create more value,” he says. “There’s this mythology out there that these heavy industries are ‘men’s industries.’ Well, a huge amount of the work that’s done in every industry has nothing to do with picks and shovels. Not that women can’t do that [thanks, Dermot!], but every company needs financial analysis, and legal and regulatory compliance, and many of the people graduating university in those professions are women.”

Dermot says more diversity on a board—gender, cultural, etc.—leads to better thinking.

“Canada is changing. The world is changing. To have a variety of perspectives on complex problems is extremely important. At the end of the day, the back-and-forth discussion between different perspectives is how you come to a much more optimal decision.”

Sure, it just makes sense. But you gotta love it when—plain and simple—the numbers tell the story.

Nina Winham is principal of New Climate Strategies (newclimate.ca), a consultancy that helps clients build value from progressive change. She tends to add a few extra ingredients to every recipe.

Tidy one corner of your house, er, portfolio

Time for a confession: I’m bad at housecleaning. But lately I’ve realized why. I get overwhelmed because I expect myself to clean everything at once. (This would explain why I never try.) But a sink here, a floor there—that I can do. It’s my own all-or-nothing attitude that defeats me and leaves me with a messy house. (Well, more often a well-cleaned house produced by a seriously disgruntled partner.)
Ready for the logic leap? I’ve just found out housecleaning is kind of like socially responsible investing. (No, I’m not making this up.)
At a recent SharedVISION event, investment advisor Mike Higgins of the Pinch Group debunked five “Myths about Socially Responsible Investing.” If you weren’t there, you missed some amazing fair-trade chocolate, and Mike’s comments, which I’ll share:

Myth #1: You have to sacrifice performance when you invest in a socially responsible manner. The quick answer: studies haven’t shown that you’ll increase your returns with SRI, but they have established that you won’t lose out. To read more, see sristudies.org.

Myth #2: Socially responsible investing is more expensive than traditional investing. Most investment advisors who provide SRI advice also offer traditional investment advice for their clients—and they charge the same either way. And a survey by Corporate Knights magazine found that management expense charges on SRI funds were only 0.06 per cent higher than those on average Canadian funds, despite the extra research done for SRI funds.

Myth #3: Socially responsible investing is too limiting; there aren’t enough choices. There are now more than 70 SRI funds in Canada, covering all the major asset classes. That may not be as many as the choices of toothpaste in the drugstore, but how much choice does one investor need?

Myth #4: Socially responsible investing screens aren’t “serious” enough; there are still bad companies in the portfolio. Many funds screen out bad actors, then choose to include at least one “best of sector” company—even if the industry has questionable practices overall. That means diversification is achieved and a dialogue can be opened with the one company that is leading the way towards change. But if you’re still not keen on the best-of-sector approach, you can always pick your stocks individually and make sure you love every company you own. Socially responsible investing is as involved—and personalized—as you want it to be.

Myth #5: Socially responsible investing is only for tree-huggers or activists. Serious investing is about making money, not feeling good. Well, that would mean women over the age of 35 with kids are the most active tree-huggers (I admit to having a bit of a thing for that little fig tree in my yard), as that’s the No. 1 demographic for socially responsible investment. And, as Mike pointed out, addressing issues such as climate change, the impact of AIDS on Africa, or rising instability due to the unequal distribution of resources isn’t just a question of feeling good; all these affect business—and your investments.

How does this relate to housecleaning, you ask? One of Mike’s final tips was that you don’t have to get into socially responsible investing all at once. If you want to start slow, just put a portion of your investments into SRI. It doesn’t have to be all or nothing, and it doesn’t make you less of a socially responsible investor. And I can vouch for the satisfaction of one sparkling clean refrigerator, even if there are still dust bunnies lurking under the couch.

Nina Winham is principal of New Climate Strategies (newclimate.ca), a consultancy that advises clients how to engage in, and build value from, progressive change. She cooks great food to thank the people in her life who excel at cleaning.

But do we reallyw ant to invest in them?

by NINA WINHAM

Why, oh why, do we love them so? The racy girls with a curled lip and just the right put-down. The bad boys with the dangerous look; the guys who are all flash and sizzle, who make you want to leap into that slick car and fling your rational self out the window in a dowdy heap of sensible shoes and plans for tomorrow.

Oh yes… we love them. (Or we would, if given the chance!) But beneath our pulsating lust, we know they’re a fleeting infatuation. When it comes time to get serious, we seek out a gentler, steadier partner. One who’s more predictable, more caring. One who’s clear on values. The thought of the risky adventure may set our hearts racing—but we know what’s good for us in the long term.

Kind of like a winning investment strategy. (OK, maybe that wasn’t the first thing you thought of. Come back from that open highway…) If you’re lucky, you might make a lot of money quickly on some racy stocks. But (just look at the tech boom), you might get burned. Meanwhile, here’s the secret we’ve known all along: over the long term, the good guys win.

Socially responsible investing (SRI) means choosing investments based on more than just their financials. Sure, it’s great to see those black and white numbers sizzle on the chart, zooming along. It seems so simple and clear. But they only tell part of the story. Add in environmental performance, governance, community relations, and the treatment of employees, and you’re getting a much better picture of a long-term partner. One who’s clear on values; who’s steadier, more predictable.

The nice thing is, even the black and white digits prove the value of socially responsible investing. In any given quarter, the indexes that follow SRI portfolios may do a little worse or a little better than traditional market indexes. But follow them over time, and you will find they steadily outperform the mainstream market. The Jantzi Social Index, for example (developed by Michael Jantzi, Canada’s pre-eminent SRI researcher and analyst), has outperformed two general Toronto Stock Exchange indexes by four per cent and seven per cent respectively since being launched in 2000. U.S. index results are similar.

In the early days of socially responsible investing, analysts warned against limiting the universe of potential stocks in your portfolio (never mind that this is exactly what financial advisors do, based on your investment goals). It wouldn’t work, they said; you would pay a price. After all, the fundamental idea of portfolio theory is that you minimize risk by drawing from a large pool to diversify what you hold. But the steady, respectable performance of SRI indexes has proven that there are plenty of good actors to choose from: enough to maintain diversification, give good returns, and make you happy for the long term—financially and otherwise.

And there’s more good news. As more investors choose companies based on their full performance (social, environmental, and financial), there’s more capital under SRI management. And that means—guess what?—more companies are cleaning up their act to appeal to those investors. So you get to shift the norm of corporate behaviour—and you get solid returns.

So what about that guy in the sexy car? Put him on a racing bike and feed him organic. Tell him you love it when he shows his sensitive side. Maybe those long-term values aren’t so dowdy after all.

Nina Winham is principal of New Climate Strategies (newclimate.ca), a consultancy working to engage consumers and employees in social change. She thinks the SkyTrain is way sexier than any car.

Socially responsible investing goes mainstream

by NINA WINHAM

It was 1980. I was a Canadian kid who’d just arrived at an American college. I was young—and not just in years. My campus peers were aware and political, and I soon found myself caught up in one of the activist causes of the day: divestment from South Africa.

Now, my own investments included nothing more than what my parents had plunked down for tuition. And I’d never heard the word “divestment” before (or “disinvestment,” for you grammarians). But I caught on: if you don’t agree with what’s happening in the world, pull the plug on the money that’s supporting it.

By the mid-’80s, spurred on by student protests, dozens of U.S. universities were dumping investments in companies benefiting from South Africa’s apartheid system. The flight of capital from the country contributed to the end of legalized racism and the advent of full suffrage for all South Africans.

It was one of the first highly visible wins for the practice now known as “socially responsible investing.” But the concept started long before, and it’s come a long way since.

“Mission-based investing” began with Quaker abolitionists, who pulled their support from companies engaged in the slave trade. Later, temperance activists touted abstinence from alcohol, and from booze-related investments. This grew to a church-led movement against “sin stocks”: companies peddling alcohol, tobacco, or gambling.

Early efforts in socially responsible investing were mostly aimed at one thing: expressing your views by pulling your money out. It’s a big stick, and it works—but it’s heavy to wield. Many argued for keeping money in, and working for change inside a company’s ownership structure. Shareholder activism (see last month’s column) was added to the toolbox.

As awareness developed, some investors wanted to do more than screen out the bad; they wanted to proactively buy stock in “good” companies. This caused a couple decades of soul-searching about how companies should behave, and how to balance shareholder wealth against the broader common good. Usually, this was framed as a trade-off—until a breakthrough in 2006.

Proponents of socially responsible investing have long argued that a better-managed company is a better place to park your cash: it’s less likely to face lawsuits (employment, environment, or consumer complaint), more likely to have happy employees who build value, and less likely to lose time dealing with unhappy neighbours and PO’d customers. In our personal lives, we recognize the value of reputation and integrity. Same thing in the corporate realm: better behaviour, better long-term results.

Dismissed and subjected to “prove-it-to-me” attitudes for a number of years, this idea finally went mainstream after the UN gathered 20 major global institutional investors (our own Canada Pension Plan among them) to develop the UN Principles for Responsible Investment. These recognize that good performance on environmental, social, and governance scales does have an impact on financial performance—a stamp of approval that leaves little room for the critics. If you’ve already switched to socially responsible investing yourself, you’re in good company: the UNPRI now has more than 270 signatories, with US$10 trillion in assets.

In the life of social movements, it was amazing to see South Africa mend its egregious ways. But to have the UN endorse an activist concept and take it mainstream? It’s not what my classmates imagined, back in the days of big hair and legwarmers. Thank heavens the styles have changed—and socially responsible investing is here to stay.

Nina Winham is principal of New Climate Strategies, a consultancy focusing on sustainability, communications, and business strategy (newclimate.ca). Although she saw her fair share of big hair and legwarmers, she lived out her college days in hippie-retro jeans.

Some investment strategies come with a change-the-world bite

by NINA WINHAM

You open the morning paper. You read a story about a company that’s steamrolling a little community somewhere in your own backyard, or halfway around the world. You get pissed off at corporate ignorance, greed, and clout. You get fired up. You plan the choice words you’re going to write in a letter to the company’s CEO.
Then you get distracted. It’s time to make lunches/go to work/help the kids with homework. You put the paper down. You never write the letter.
It’s frustrating, watching big companies do bad things. But don’t get mad. Get invested.
You probably know about socially responsible investing, where you buy stock in companies based on the way they handle social, environmental, and governance issues, as well as their financial performance. The way you (or your mutual fund advisor) pick stocks today helps build the world we’ll live in tomorrow.
But there’s more. When you choose socially responsible investing, you unleash a bunch of social change watchdogs. And unlike most of us who can’t squeeze “lobby corporate CEOs” onto our to-do lists, they do get around to writing those letters.
It’s called shareholder advocacy, one of the principal tools in the socially responsible investment world. It means the owners of those mega-companies (which is all of us, if we own stock) take an active role in what the company is up to. Sometimes, just requesting action on an issue can work. If it doesn’t, there are shareholder resolutions: socially responsible shareholders file a resolution that has to be voted on by all owners. Along the way, the media gets wind of the situation, the public is educated, and the company must make a very visible decision to mend its ways—or publicly declare that it won’t live up to standards that some of its owners expect.
Socially responsible shareholder resolutions are used to address all sorts of practices, from corporate governance to climate change, from pollution to labour practices. Ultimately, they protect the bottom line, too; it’s becoming clearer on this small planet that bad behaviour today tends to result in poor financial performance down the line.
PepsiCo has been the target of a number of shareholder campaigns over the past few years. One targeted its practices concerning community water supplies near a bottling plant in India. Another was aimed at having the company use more recycled plastic in its bottles. Yet another was part of a large movement to have multinational companies assess the impact of HIV/AIDS on their bottom line—a way to raise the profile of the disease and its impact on communities around the world.
The result? PepsiCo is now a leader on an increasing number of social responsibility fronts; visit their corporate web page (pepsico.com) for a sample. The company is advocating for a U.S. program to reduce greenhouse gas emissions, has aggressive conservation and efficiency programs in place, and runs mentoring programs aimed at increasing minority hiring. Quite simply, Pepsi has realized at least some of its owners really care about this stuff—and they’ll raise a ruckus if the company shows it doesn’t.
Your investment company makes money from you. When you choose socially responsible investing, some of that money gets turned into action: it funds watchdogs with an international bark and a media-savvy bite. You get financial returns—and the satisfaction of knowing the letter’s already in the mail.
Nina Winham is principal of New Climate Strategies, a consultancy focusing on sustainability, communications, and business strategy (newclimate.ca ). She loves writing letters, but has a hard time remembering to take them to the mailbox.

Responsible investing that’ll impress your kids

by NINA WINHAM

It came for your 10-year-old on her birthday: a $500 cheque from Grandma with a note saying “Invest it wisely!” So off you go to your financial advisor, where you and your little investor consider mutual funds. She learns about how the fund will buy stock in various companies, and how to make choices to help the money grow. You’re aglow with the educational moment: teaching her good fiscal management, sound judgment, responsibility for the future…

Then your kid (a budding animal rights activist) asks, “Mom, how do they pick which companies to give my money to? What if they test chemicals on animals?”

Got a quick answer? If you’re like most of us, this question might make a train wreck of your excellent educational moment. Because let’s face it: mutual funds are an out-of-sight, out-of-mind way of convenience investing. A welcome convenience in our busy world, for sure, but one that makes it harder to give your socially conscious child the answers to her burning questions.

In our economy, capital is raised to build buildings, expand operations, produce goods, and deliver services. Companies big and small rely on shareholder equity to grow and change—equity that tracks back to your kid’s mutual fund holding. Where the money goes, our economy—and society—grows.

When you buy stock directly, you come face to face with the company you’re buying into (well, not literally, but work with me here). You consider its line of business, its track record, and the market for its goods and services. But with a mutual fund, you’re buying a manager. That person does the legwork and makes choices for you, and is bound only by the general nature of the fund (high-growth, Canadian, high-tech, etc.). It’s a way to buy stocks and pay minimal attention to the specific companies you hold—a relief for those of us without the time or savvy to manage a stock portfolio.

But it’s also a step removed from really knowing what your money is doing out there in the world. Your manager’s only instructions may be to make the most money they can. But what if you don’t like the way they do it?

You’d probably think twice about returning to a restaurant where the owner was publicly abusing his staff. You’d consider boycotting a company caught using seven-year-olds in its factories. And if a company in your backyard were dumping chemicals in a salmon stream, you wouldn’t want this to be part of “business as usual.” At the same time, wouldn’t you want to reward a company that’s got it all together, with well-treated employees, strong environmental programs, and a thoughtful approach to human rights in other countries? If it was that easy, of course you would.

These days, we have a lot of choices to bring that same mindfulness to our investing. Mutual funds with ethical screens (programs used to meet particular selection criteria) abound. When you buy these funds, you step up to the counter and place your order: “I’d like to grow my money. And, I’d like to build a better world. I know my money has power—and I’ll be in charge of that power, thank you very much.”

But don’t expect applause from your kid when you tell her she can buy a fund that’s screened for testing on animals. It’ll make so much sense, she’ll think we always did it this way.
Nina Winham is principal of New Climate Strategies (newclimate.ca), a consultancy focusing on sustainability, communications, and business strategy. Her four-year-old holds no mutual funds so far, but is already very good at asking questions.

Let me count the ways

by NANCY ZIMMERMAN

So I saw The Corporation, I saw An Inconvenient Truth, and I know the sordid sagas of corporations like Halliburton and Enron. It’s enough to make you swear off investing forever, and, in fact, one woman in my (former) investment club did just that. “It’s all dirty!” she cried. “I’m outta here!” I empathize.
There’s little old me with my middle-class income on the one hand. There are great big corporations we love to hate on the other. And somehow I need to bridge the two if I hope to retire in a manner to which my dachshunds have grown accustomed.
With Socially Responsible Investments (SRIs), we can stop holding our noses as we embark on the journey of reconciling our personal values with our wealth-building goals and invest in corporations. I need to digress here to define SRI, just in case you aren’t intimately familiar with the term. If you find yourself repulsed by corporations that deal in tobacco, create pollution, outsource to sweatshops, or take part in many other unethical and environment-endangering activities, you’ll welcome corporations that avoid them. And if you’re going to support responsible corporate behaviour, you have to find ways of using social and environmental criteria in the selection of the investments in your portfolio. There are two major approaches to doing this.
Do It Yourself
You can buy the stock of any company directly, which means you have to do your homework in order to hit the sweet spot of SRI. One of the best ways to get started is to check out the Social Investment Organization at socialinvestment.ca. It’s the trade association for the SRI industry in Canada and a rich resource to acquaint yourself with the various components and players in the SRI field. I particularly like their “Related Practices” button—it’s a motherlode of information providers.
Of course, doing it yourself means you’ll need to keep vigilant, join an investment club, or have a friend deep into SRI investing who can lend a helping hand. The trick is to not only keep your investments “clean” but also get acceptable returns on them.
Let an SRI Professional Do It
Or you can get a professional to invest for you. There are mainstream financial planners who offer some SRI options along with their regular “unscreened” financial products. However, for optimal choice in order to tailor your investments to your values, there are financial planners who specialize in SRI and offer a wide variety of SRI financial instruments.
The choices are based on a range of “screens” that various SRI mutual fund companies use to pick their portfolios. (Sustainability analysts spend their days reviewing, deciphering, interpreting, and distilling information to provide scorecards on various corporations.) There are lots of different screens—or biases, if you will. For instance, some won’t invest in defense and military, some won’t invest in tobacco or gambling, others avoid nuclear energy, while still others are more concerned with social issues like sweatshops.
While we can recycle, drive hybrid cars, or buy fair trade products, socially responsible investing offers us a much broader way to vote with our wallets. In becoming shareholders in corporations, we send a loud and resounding message that we want it all. We want profitable companies, and we want them to closely reflect our values and convictions.
Nancy Zimmerman is a money coach whose dachshunds make frequent cameos in her blog, nancyzimmerman.com.