Sustainable Investing with Ethical Funds

Tracy M. Heath

Regional Sales Manager

Ontario & Atlantic Canada

SRI Around the World

Sources: SIF 2003, UK Social Investment Forum, Assirt , SIO 2003

US UK

AustraliaCanada

$2.16 trillion USD

11.3% of market$403 billion USD

11% of market

$14.3 billion USD

3.2% of market

$51 billion CDN

3.3% of market

$10 billion retail

Is CSR important to Canadians?

• 81% say companies should use their expertise to solve social problems

• 79% say companies should work toward reducing human rights violations in the world

• 72% say companies should help reduce the gap between rich and poor

• 67% say companies should provide health services when operating in poor communities

Source: 2002 Canadian CSR Monitor, Globescan

Is CSR important to Canadians?

• 89% say that their respect for a company increases when the CEO speaks in favour of SRI

• 85% say they are interested in learning how companies try to be more socially responsible

• 77% say that, as a consumer, they can make a difference in how responsibly a company behaves

• 54% have punished a company seen as socially irresponsible

Source: 2002 Canadian CSR Monitor, Globescan

The Ethical Core Values

• Respect for the EnvironmentProgressive Environmental Practices

• Respect for StakeholdersProgressive Stakeholder Relations

• Respect for Human Rights & SafetyHuman Rights and Equal Opportunity

Non Military WeaponsNon TobaccoNon Nuclear

Corporate Sustainability Scorecard

A Leaders

B Fast Followers

C Followers

D Borderline

----------------------------------------------

E Non-compliant

Green List, eligible

Green List & Focus List

Red List, ineligible

CorporateSustainability

Scorecard

Key Performance Indicators

• Each Key Result Areas consists of multiple Indicators– Environment; eg. emissions reductions– health & safety; eg. fatalities– community relations; eg. charitable donations

• 55 to 130 Indicators depending on sector

• KPIs refined annually

CorporateSustainability

Scorecard

Peer Group KRAs

Financial Services International Mining

Enviro

10%

Corporate Governance

30%

Employee Relations

30%

Environment

20%Human Rights

20%

Community Relations

20%

Corporate Governance

10%Health & Safety

20%

CorporateSustainability

Scorecard

Employee Relations

10%

Community Relations

30%

Working With Portfolio Managers

• Company lists sent to portfolio managers• Portfolio managers can buy Green List

companies at will• Portfolio managers have three months to

divest of companies new to the Red List

CorporateSustainability

Scorecard

Elements of the Program

ShareholderAction

Program

Types of Shareholder Action

• Shareholder dialogue– Structured negotiation

• Shareholder resolution– Recommendation for company action

• Proxy voting– Engage all companies in Funds

Success Stories

• IPSCO improves emissions disclosure

• Bristol Myers Squibb phases out PVC

• Morgan Stanley adopts enviro policy

• Citigroup adopts the Equator Principles

• Alcan embraces sustainability reporting

ShareholderAction

Program

Focus List Themes

Core Value Issue AskEnvironment Climate change

Environmental toxins

Project finance

Invest in renewables

Reduce emissions

Equator Principles

Stakeholders Accountability report

Dual class shares

GRI report

Issue single class

Human rights & human security

Rights violations

Sweatshops

HIV/AIDS

Poverty

Adopt UN Norms

Adopt ILO standards

Response to HIV

Fair trade coffee

2005 Focus List - Canada

Alcan Human Rights Policy/HIV AIDS

Bank of Montreal Equator Principles

Barrick Gold Human Rights Policy/HIV AIDS

CIBC Equator Principles

EnCana Renewables/Human rights

Falconbridge Human Rights Policy/HIVAIDS

Fortis Inc. Human Rights Policy

Forzani Group Human Rights - Labour stds

ShareholderAction

Program

Why is this important to YOU?

Facts

• According to a poll by the Ideation group – “53% of Canadians are interested in ethical mutual funds”

(Source: Moneysense.ca Sept. 2002)

• 84% of Canadian investors believe the financial community should pay more attention to social and environmental issues.

• 74% expect their advisors to incorporate this information into their investment decisions

(Source: Globescan Survey 2003)

Facts

• 66% of investors have not had any discussions with their advisors

• 13% said they brought it up to their advisor

• 8% said their advisor brought SI investing up to them (Source: Globescan Survey 2003)

• Only 3% of assets are invested in SRI funds

Why not?

• SRI seen to focus on negative screening

• Resistance among investment advisors

• Performance myth

• MER myth

• Lack of a simple and coherent vision & language

MER Myth…

• “Average MER for an SRI fund: 2.60 versus 2.54 for the average Canadian Mutual fund. (Source: Corporateknights.ca 2003)

• Ethical Funds commitment is to be at or below the median.

• Research has shown there is no penalty for investing in a socially responsible manner. (Source: Globe and Mail Feb 22, 2005)

Performance Myth

• Myth: SRI funds under-perform • Fact: S& P/TSX 60 Index 1 yr return : -15.7% All SRI Fund 1 yr return: -11.6% All fund 1 yr return: -15.2%

All SRI fund 5 yr return: -1.9% All fund 5 yr return: -1.3%

All SRI 10 yr return: 6.6% All fund 10 yr return: 6.5%

(Source: Corporateknights.ca 2003)

Who is a sustainable investor?

University educated professionals

Higher than average household income

At least 60% women

Average age between 35 and 59

Often have personal reasons to avoid certain corporate sectors

Strong social, political, and religious views

Active members of cause-based institutions

Source: Taddingstone, 2004

The Ethical Funds Company

• Leading socially responsible mutual fund company

• Head office in Vancouver, BC• Canada’s largest family of SRI funds• 12 funds with $1.8 billion AUM• Owned by Canada’s credit union

system

Who are we?

• Deliver investments portraying the values of and to the average Canadian.

• Investing with both financial and social goals in mind.

• Funds are sold through all distribution channels in Canada

What is our vision?

• Invest in companies on the basis of financial and sustainability performance

• Encourage companies to adopt sustainability

• Live by the same values

• Provide competitive investment returns throughout a market cycle

New Commitments

Earn consistent above-median return

Ensure Ethical Funds MERs are at or below-average

Support advisors through Regional Sales Managers across Canada

May 31, 2005 1 year

2 year

since inception

Ethical Canadian Dividend Fund

26.5 22.9 21.3

• Fund is managed by Greystone Investments – Regina• Five star fund• Won the Imagine Socially Responsible Award – 12/05• 25 businesses in portfolio• Mid to Large cap

Ethical Canadian Dividend Fund

May 31, 2005 1 year

3 year

5 year

10 year

Ethical Special Equity Fund

18.30 17.32 20.67 14.22

• Fund is managed by QVGD – Calgary• 35 businesses in portfolio• Average market cap – 600 million

Ethical Special Equity Fund

Final thoughts

• An SRI portfolio can look like any standard plan• Don’t have to give up returns to have an SRI

portfolio• It’s up to advisors to position these alternatives

with clients, to match their financial and value based needs.

• Investors get more control over their money• Corporations are held more accountable• General health of our society might improve.

We look forward to earning your business!

WHOLESALER CONTACTSDiane Haggarty BC & AB – 604-787-1286Shirley Babaluk SK & MB – 204-223-3045Tracy Heath ON & Atlantic – 1-888-882-5590