Transcript CFC Responsible Investment Primer

PRIMER
COMMUNITY FOUNDATIONS OF CANADA
PILOT PROJECT
JULY 2008
Table of Contents
I Introduction to Responsible Investment (p. 3)
- Jantzi Research
II Shareholder Action and Proxy Voting (p. 34)
- The Ethical Funds Company
III Community Investment (p. 45)
- Tides Canada Foundation and Vancity Community Foundation
IV Developing a Responsible Investment Policy (p. 79)
- SHARE
V Bibliography (p. 95)
Note:
The RIPP Primer is compiled from different source presentations.
Originals are credited in detail in the Bibliography.
2
I
Introduction to Responsible
Investment
What’s in a name?
• the integration of environmental, social and
governance parameters into the investment
decision making process
SRI
MBI
4
• the incorporation of an institution’s
central purpose or calling into its
investment decision making process.
Responsible
Investment
5
Definition of RI
• There are many different names given to responsible
investment, but one common definition:
“The integration of environmental, social
and governance factors in the selection
and management of investments.”
From Social Investment Organization
www.socialinvestment.ca
6
Four Approaches to RI
• ESG Integration – the integration of social, environmental
and governance factors in stock selection
• Screening – selecting investments on the basis of preidentified social, environmental and governance factors
• Shareholder action – exercising ownership rights such as
proxy voting, management negotiations, shareholder
resolutions
• Community investment – assets invested in local
community development
7
Responsible investing is
becoming mainstream…
Europe
• retail SRI in Europe totals more than €48.7 billion in
assets – increase of 102% from year before
• institutional SRI in Europe totals about €2 trillion in
assets under management
9
Government mandated disclosure:
a catalyst for change
• July 2000 – UK Pensions Disclosure Regulation: “the
extent (if at all) to which social, environmental or
ethical considerations are taken into account in the
selection, retention and realisation of investments”
– Belgium, France, Germany, Italy
• Pension funds acting on SRI
– France - Fonds de Réserve Pour Les Retraites
– Netherlands – ABP, PGGM
– Scandinavia – Sweden, Denmark, Norway
• Australia
– 2001 – Financial Services Reform Act
10
United Kingdom
• February 2001 - Trustee Act requires charity
trustees to make sure investments are
suitable, not only financially but also with
regard to the charity’s stated aims
• increasing number of charities and
foundations embracing SRI
– Barnardo’s
11
Barnardo’s
• UK charity focused on children - founded 1866
•
“…not to hold investments in companies whose activities
are considered to be to the detriment of children and
where we believe donor support might be adversely
affected.”
– companies considered to exploit children (usually in the
Third World) in the manufacture of their products
– companies who derive significant income from the
production or distribution of pornography or adult
entertainment television
– companies which derive more than 10% of their turnover
from the production or sale of tobacco products
12
SRI Assets in the U.S.
13
U.S. Foundations
• interviewed 92 foundations – 64
private, 24 community and 4
corporate
•
during the past ten years the number
of U.S. foundations involved in SRI
has doubled
•
fastest growth in foundations with less
than $200 million in assets under
management
•
F.B. Heron Foundation, David and
Lucile Packard Foundation, Vermont
Community Foundation
14
U.S. Foundations
• focuses on development
and implementation –
“from idea to execution’
•
12 case studies
highlighting a variety of
experiences – Kalamazoo
Community Foundation
•
risk, return, and impact
15
SRI Assets Under Management in Canada
• $503 billion in SRI assets in 2006
– increase from $65.5 billion over two years
$1.94
$36.5
$18.1
$12.8
Asset Managers
Retail Investment Funds
Invetsment Managers
employing ESG
Pension Plans employing
ESG
$433.1
Jantzi Research Inc.
Socially Responsible
Lending
16
The Legality of RI…
17
Harries vs. Church Commissioners
• Trustees may avoid investing in a company if it clearly
conflicts with the aim or purpose of the organization,
even though it may be the most prudent investment
financially.
• In those circumstances where trustees are satisfied
that investing in a company engaged in a particular
type of business would conflict with the very objects
their trust is seeking to achieve, then they’re duty
bound not to invest.
18
Legal Perspective
• October 2005 – Freshfields Bruckhaus Deringer
– A legal framework for the integration of
environmental, social and governance issues
into institutional investment
• leading international law firm, with over 2,400
lawyers in 28 offices in 18 countries across
Europe, Asia and the U.S.
• “…integrating ESG considerations into an investment analysis
so as to more reliably predict financial performance is clearly
permissible and is arguably required in all jurisdictions.”
19
Evidence that it is possible to
implement RI and generate a
competitive rate of return…
20
Mainstream Investment Initiatives and Investors
• Multilateral mainstream SRI initiatives
– Carbon Disclosure Project
– CICA - MD&A Disclosure About the Financial Impact of
Climate Change and other Environmental Issues
• UN Principles of Responsible Investment
• Pension Funds who have endorsed UNPRI
- Canada Pension Plan Investment Board
- British Columbia Investment Management Corp.
- Caisse de dépot
21
What’s the Opportunity?
• generation of alpha
• growing body of research highlighting link
between superior sustainability performance
and enhanced share value
22
Materiality studies demonstrate value of ESG
• 10 sell-side brokerage houses invited
to undertake reports across sectors/
themes to evaluate the materiality of
environmental, social and
governance (ESG) issues
•
ESG issues are material – there is
robust evidence that ESG issues
affect shareholder value in both the
short- and long-term
•
the impact of ESG issues on share
price can be valued and quantified
•
materiality varies across sector and
themes
23
Materiality Studies
• 10 academic/20 sell-side brokerage
studies
•
evidence suggests that there appears
to be no performance penalty from
taking ESG factors into account in the
investment management process
•
10 studies are positive, 7 neutral, and
3 negative
•
SRI leading to underperformance is a
misconception
24
Positive Performance of
Sustainability Indexes
e.g. Jantzi Social Index®
25
JSI Index
TSE 100 Index
Dec-99
Sep-99
Jun-99
Mar-99
Dec-98
Sep-98
Jun-98
Mar-98
Dec-97
Sep-97
Jun-97
Mar-97
Dec-96
Sep-96
Jun-96
Mar-96
Dec-95
Sep-95
Jun-95
Mar-95
Dec-94
Value of $100 invested
Jantzi Social Index® - Backtest
260.00
240.00
220.00
200.00
180.00
160.00
140.00
120.00
100.00
80.00
TSE 300 Index
26
Jantzi Social Index® - Backtest
JSI
TSE 100 TSE 300
18.93% 18.11% 17.35%
16.12% 16.04% 15.76%
0.802
0.755
0.720
Annualized Return
Std Dev (Risk)
Sharpe Ratio*
* (Return-RiskfreeReturn)/StdDev [Assumed Rf=6%]
27
®
JSI
- Comparative Values
(through April, 2008)
RETURNS
Apr 2008
3 mths
6 mths
1 yr
JSI
5.90%
7.60%
-3.90%
5.45%
16.21%
S&P/TSX
COMPOSITE
4.60%
6.66%
-3.42%
6.58%
S&P/TSX 60
5.42%
7.36%
-1.73%
10.15%
Source: State Street Global Advisors (SSgA)
3 yr*
5 yr*
Inception*
Inception**
17.80%
8.32%
94.71%
16.837%
18.65%
8.19%
92.71%
18.80%
19.47%
8.16%
92.23%
* Annualized
** Cumulative
(since 01/01/2000)
28
JSI® - Comparative Returns
Comparative Returns: Dec 1999 - April 2008
(through April 30, 2008)
210.00
200.00
190.00
170.00
160.00
150.00
140.00
130.00
120.00
JSI
S&P/TSX Comp
S&P/TSX 60
110.00
100.00
90.00
80.00
29
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6
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5
De
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4
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Value of $100 invested
180.00
Why Mission-Based Organizations
Invest in RI
•
•
•
•
•
•
Advance organizational mission
Align investments with values
Enhance shareholder value
Reduce reputational risk
Provide marketplace differentiation
Provide universal investors with investment
options
• May be legally required
30
Different Screening Approaches
1.
Negative screens – also referred to as
2.
Best-of-sector approach – allows investment in, e.g., the top 20%
to 35% of companies in every sector, ranked on sustainability
performance grounds. This can allow funds to invest in
companies from every industry, as long as they rank the
companies chosen comparatively well for environmental, social
and governance (ESG) criteria
3.
Positive screens - usually used to described thematic focus such
as cleantech/renewable energy
exclusionary screens
31
Companies are Rated for their ESG
Performance
32
Standards for determining
social/environmental performance
• Strengthening Communities
– community consultation
– aboriginal relationships
– charitable giving
• Environment
– UNEP: The Hazardous Chemicals and Wastes
Conventions (e.g. Stockholm Convention on
Persistent Organic Pollutants)
• Human Rights
– UN Declaration of Human Rights
– United Nations Global Compact
33
II
Shareholder Action and Proxy
Voting
34
The Name Game
Corporate Engagement
Shareholder Engagement
Shareholder Action
Shareholder Activism
Corporate Dialogue
35
Shifting perceptions
Screening
10%
35%
29%
Over next 1-2 years
Over next 3-5 years
Over next 6-10 years
Never
26%
Source: 2005 Fearless Forecast, ©2005 Mercer Human Resource
Consulting LLC and Mercer Investment Consulting, Inc.
36
Shifting perceptions
ESG evaluations
7%
27%
30%
Over next 1-2 years
Over next 3-5 years
Over next 6-10 years
Never
36%
Source: 2005 Fearless Forecast, ©2005 Mercer Human Resource
Consulting LLC and Mercer Investment Consulting, Inc.
37
Shifting perceptions
Active ownership
11%
12%
48%
Over next 1-2 years
Over next 3-5 years
Over next 6-10 years
Never
29%
Source: 2005 Fearless Forecast, ©2005 Mercer Human Resource
Consulting LLC and Mercer Investment Consulting, Inc.
38
Shareholder Action Definitions
• Shareholder action
– Monitoring corporate performance
– Seeking changes in corporate practice through dialogue
– May involve the use of shareholder proposals
• Shareholder proposal
– Request that a company undertake specific action
– Companies are legally obliged to include proposals in
management proxy circular
– Voted on at annual general meeting
39
Why Conduct Shareholder Action?
Value
• Engage to acquire an informational advantage
• Engage to encourage long term value creation
• Engagement to control risk and boost
performance
Values
• Engage to make companies more sustainable
• Engage to better fulfill your mission
40
Shareholder Action Approach
Identify Candidates and
Establish Goals
Establish Stakeholder Coalition
Communicate Concerns to Company and Offer Dialogue
Company Acknowledges Concerns
and Agrees to Dialogue
Company Agrees to Dialogue
Company Fails to
Acknowledge Concerns
File Shareholder Proposal
Meet with Company
Company Opposes Proposal in Proxy
Circular
Establish Course of Action
Solicit Support and Move Proposal at
AGM
Follow-up and
Monitor Company Progress
Assess Results and
Establish Next Steps
41
Proxy Voting Definitions
• Proxy voting
– Owners of common stock have the right to vote on a variety of
company policies and practices
– Opportunity to vote comes in advance of annual meeting
– Voting items from management and shareholders
– Published in Management Information Circular
• Proxy voting guidelines
– Establish proxy voting positions and decision rules on corporate
governance and social issues
• Proxy voting services
– Assist investors with the proxy management, analysis, voting, and
disclosure process
42
Proxy Voting Disclosure
43
Proxy Voting Current Web Disclosure
44
III
Community Investing
45
Different Names for Community
Investing…
Social Finance
Triple Bottom Line (TBL)
Mission Related
Investing (MRI)
Social Enterprise
Socially Responsible
Investing (SRI)
Program Related
Investment (PRI)
Social Purpose
Business
Community Economic
Development (CED)
Mission Based Investing (MBI)
Social Economy
Environment Social Governance
(ESG)
Social Investing
Social Venture Fund
46
Context Driving Financial
Innovation
• New perspectives on “theory
of change” beyond
“grantsmanship”
• Leveraging more assets:
convening capability,
networks, long term capital,
leadership, etc
• Recognizing urgency and
scale of enviro-social
challenges; new rules of the
game (e.g. carbon’s impact)
• Rise of social
entrepreneurship
• Search for social
innovation’s scaled impact
• Moving beyond sectoral silos
(government, voluntary,
business): role of hybrid
space & relationship to social
innovation
• Recognizing value of
community asset building
and social enterprise
• Benefiting from international
lessons & best practices
(UK, US, etc.)
47
Foundations Involved Already
• Active foundations in MRI/MBI/CI field (partial list):
– JW McConnell Family Foundation (Qwest U loan);
– Ivey, Metcalfe: NCC Revolving Fund with RBC (in formation)
with foundation loan guarantees
– Edmonton Community Foundation (Social Enterprise)
– Vancity Community Foundation (Groans: grant/loans)
– Vancouver Foundation (SRI, SVF)
– Endswell Foundation (non profit building)
– Tides Canada Foundation (social enterprise)
– Ilahie Foundation (non profit building)
– Bealight Fdn/Social Capital Partners (social enterprise)
– Muttart Foundation (non profit building)
– CAIC (Canadian Alternative Investment Co-op) handling CI
investments for religious charities; [Jubilee Fund]
48
How Do Social Entrepreneurs Finance
Their Great Ideas?
• Social entrepreneurs are seeking: Scale, Durability,
Impact
• That requires resilient, sustainable financing
• Traditional nonprofit external funding sources –
charitable donations and Gs+Cs – face challenges
• More likely option is “business model”: social
enterprise or hybrid (part nonprofit, part enterprise)
49
Challenge becomes: How to finance social
entrepreneurs’ enterprises?
→ Moving from grants to other forms of
finance…
50
NONPROFITS DEPEND ON
FEW SOURCES OF INCOME
All Organizations
100%
75%
40% provincial,
9% federal
49%
Government
Earned Income
50%
35%
Donations and Grants
25%
Other
13%
0%
3%
51
Growing Donations But
Declining Donors:
1984 to 2005
30%
$1,400
29%
$1,200
28%
$1,000
Donors as a %
of Taxfilers
27%
26%
$800
Average
Donation ($)
25%
24%
$600
23%
22%
$400
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20
Donations
% of Taxfilers
Source: CRA compiled by Imagine Canada
52
Social finance is…
finance with a social or
environmental mission
Or
Social finance is a sustainable
approach to managing money that
delivers social, environmental
dividends and economic return
through social enterprises
operating in the non-profit or public
benefit universe.
53
Social Finance Exists Across A
Broad Continuum…
HIGH INVOLVEMENT
Venture
philanthropy
Venture
capital
CHARITABLE
COMMERCIAL
Traditional grant
making
Bank lending
LOW INVOLVEMENT
Adapted from Margaret Bolton, 2003
54
Social finance’s most visible
example is MICROFINANCE…
55
Social enterprise is…
A business with primarily social (and/or
environmental) objectives whose surpluses are
principally reinvested for that purpose in the business
or in the community, rather than being driven by the
need to maximise profit for shareholders and
owners...
56
Social finance for public benefit
•
The flow of financial capital to human
need uses:
– Affordable Housing
– Social Enterprise
– Support for working families
– Health & Home Care
– Community Development
– Social Economy
– Clean Technology
– Microfinance
– Fair Trade
– Green Building
– Education
– Bottom of the Pyramid
(source: market sector listing adapted
from www.xigi.net)
Sources
Intermediaries
Mechanisms
Recipients
Uses
57
Social Finance Examples
•
Local community development
– The Columbus Foundation used $2 million PRI to seed an $18 million low-cost housing
fund to build 1,600 new units of affordable housing.
– The Social Enterprise Fund (SEF) is designed to fuel the social economy by providing
alternative financing, leveraging mainstream funding, and providing technical assistance
to social entrepreneurs. The SEF will be capitalized in the amount of $10.5M over five
years. Key financial partners are likely to include the City of Edmonton, the Edmonton
Community Foundation, other levels of government and private donations.
•
Startup or expansion capital in underserved communities
– Deutsche Bank created an innovative $20 million investment fund to finance the
expansion of eye care hospitals in developing countries. The Eye Fund I will provide
loans and guarantees to support the development of affordable, sustainable and
accessible eye care for the world's poor while providing a near-market return
•
Debt mechanisms
– Millions in loans to community finance institutions and social enterprises by
Vancity, Citizens Bank and Calvert Foundation’s Community Investment Note,
•
Using public policy & tax system
– PLAN (Planned Lifetime Advocacy Network) promoted Registered Disability Savings
Plan (RDSP), families are incentivized to save for disabled children who will survive them
58
Collaborative approaches and blended
returns
•
Growing social and environmental
pressures +
government and market failure =
the conditions for social innovation
Projected
Income
New
Social Finance
Expanding
Earned Income
Existing
Earned Income
Government
Business
Hybrid
Space
Charity &
Non-profit
Gvrnt Gs & Cs
Charitable
Donations
59
Social Finance Supports Businesses
in the Public Benefit Universe
Low Profit Limited Liability
Companies (L3C)
Community Interest
Companies
B Ch
us
. A a ri t
y
r
m
S
oc o
ia f C
lE h
n t a ri
er ty
S
pr
oc
is
.
e
S P
oc ur
. R po
es se
p. Bu
B Bu s.
us s
in in
es es
s s
Social
Commercial
Adapted from: John Kingston, Venturesome
60
TAX
How does capital flow?
INVEST
Individuals
Government
Organizations
Financial Entities
- managing other’s money
1.
From the source
DIRECT
Community Interest
Companies
2.
Into an organization
Bu Ch
s. ar
Ar ity
So m
ci of
al
C
En ha
te rity
rp
So
ri s
c.
e
So Pu
c . rp
R os
es e
p. Bu
Bu Bu s.
si sin
ne e
ss ss
Social
Commercial
Adapted from: John Kingston, Venturesome
3.
For use in either
Operations
Programs
Assets61
Foundation MBI, MRI, PRI
• PRIs are a new tool for philanthropy
• Employ an investment approach
• What’s the rationale?
– New arena for impact
– Leverage potential: partnerships (business, non-profit,
government) and hybrids
– Supports new trend of SE organizational profile
– Embraces the financial sustainability & financial
resiliency agenda
– Diversifies asset management
62
Canada Revenue Agency Rules
• CRA includes CI in its 1999 Community
Economic Development (CED) policy, referring to
PRIs
• Two frameworks applicable:
– PRIs (Program Related Investments) with
charities
– Regular Investing
• CRA Off-the Record Policy Consultation (2008)
63
Envisioning Canada’s Social
Finance Marketplace
•
NONPROFITS: Accessing social finance for financially self-sustaining & asset
building enterprises tackling social & environmental needs (e.g. economic
opportunity for disadvantaged populations, homecare infrastructure, disability
agenda/RDSP, market shifting, community-based renewal energy, etc.)
•
MAINSTREAM CAPITAL: Offering range of RDSPs, “Community Venture
Funds”, “Green Venture Funds”, “Local Employment Venture Funds”,
“Conservation Economy Investment Funds”, “Social Housing”, etc.
•
GOVERNMENT: Providing enabling policy (Municipal, Provincial & Federal)
–
Special tax credits for social enterprise investing, enabling private capital. Income at
lowered tax rate, or receive refundable tax credit.
–
Regulatory changes to simplify how charities and non-profits can directly operate or
control social enterprises in the new hybrid space.
–
Capacity building support for the evolving non-profit sector through dedicated funding
mechanisms targeting key constituencies and social policy goals (e.g. for business
plan development of social sector social enterprises, for technical training for financial
and business managers in the emerging social-business hybrid sector, etc.)
•
INVESTING PUBLIC: Expanding ownership of “social finance” asset class
products in addition to equities and fixed income securities
•
USER PUBLIC: Benefiting from emergence of innovative new systems of
delivery and support for public benefit services and sustainability services.
64
Social Finance Poised
To Grow Quickly Since…
• Canada can borrow proven models from US and UK
• We can make the transition to a robust social finance
marketplace with:
- New conversation among finance, government,
foundations and nonprofits about the potential to scale up
innovative social enterprise and social finance
- New capital market instruments involving the range of
financial institutions: banks, credit unions, pension funds,
mutual funds, etc.
- Public policy that a) creates incentives for capital to
expand into social finance, b) borrows international best
practices in charity regulations that enable foundations and
nonprofits to operate successfully in the growing hybrid
space
- Strengthening the capacity of nonprofits, their social
65
enterprises, and intermediary institutions
Causeway
New national collaboration accelerating a
social finance market place for financing
social innovation serving public benefit
SiG@MaRS
66
POLICY
CHANGE
BUILDING BUZZ
& LEVERAGING
NETWORKS
SHOWCASE
DEAL
MECHANISMS
CAUSEWAY
SUPPORT
LEADERSHIP
PARTNRSHIP
& SHARED
OWNERSHIP
MOBILIZE
KNOWLEDGE
& CAPACITY
BUILDING
SUPPORT
MOVEMENT
OF SOCIAL
FINANCE
STAKEHOLDERS
ENGAGE
MAINSTREAM
FINANCIAL
INSTITUTIONS
67
For more information about CAUSEWAY
http://causeway-sff.wikispaces.com/
and Social Finance visit:
www.tidescanada.org
For more information on the charity sector visit:
www.imaginecanada.ca
Community Investing in
Practice:
A Vancity Case Study
69
Role of Community Investing at Vancity
Community Foundation
• Community investing as part of our objectives since
inception
• Our bylaws refer to “investments which are prudent”
rather than those “in which trustees are authorized by
law to invest”
• Part of strategy for using all our assets toward
mission
• Fit with Vancity Credit Union as a key partner and
with existing capacity
• CI increasingly a fit with donors and other partners
(and growing demand from community organizations)
70
CI at Vancity Community Foundation
• A range of different transactions, including individual
micro-credit loans, social enterprise, arts, social housing,
asset building for non-profits, bridge loans, etc.
• Fits within CRA guidelines as Program Related Investment
(especially with respect charities), or as part of overall
investment strategy
• Most often done as part of a much larger financial
package, leveraged as high as 10:1
71
CI at Vancity Community Foundation
• During some down market cycles, the community
investment holdings have been the strongest part of
our portfolio
• Still working on articulating an effective framework for
measuring non-financial returns
72
CI at Vancity Capital Corporation
• Significant amount of community investing
experience through Vancity Capital Corporation
(venture capital subsidiary of Vancity Credit Union)
• More than $15MM, 50 transactions and sizes, $25K
to $1.5MM, areas including education, arts,
employment training, housing, transportation, natural
resource management, social services, health,
sports, food, alternative energy, aboriginal
communities, etc.
73
CI at Vancity Capital Corporation
• Losses less than 2%, including some additional risk
mitigation in place from Federal Government,
average returns of 10% (before operating cost
allocations) – return on assets somewhere between
6% - 12% depending on leverage and allocation
assumptions in model
• Non-profit organization represent 15% of the overall
portfolio at Vancity Capital, as high as 25% when
including sustainability businesses
74
Lessons learned in CI
• It starts with a willingness to engage in this activity
(some tolerance for risk taking and a view to how this
fits the mandate of the organization) – often learning
by doing and seeing value in lessons
• Need to set boundaries and objectives for this (often
in policy, or a shared understanding
• Balance the need for structure and boundaries with
flexibility (often through processes – using
committees or individuals with delegated authority or
using the entire Board within tolerances for risk and
based on investment size
75
Lessons Learned in CI
• Capacity is a key challenge (both the capacity of your
organization to structure transactions and lend, and the
capacity of investees to effectively use repayable capital)
• Relationships are key. It often comes down to trust, and
community investments often emerge from existing
relationships within organizations
• Investment partners help to spread risk and can
complement the due diligence process
• Additional risk mitigation tools or “credit enhancements”
can be useful (additional loss reserves, risk sharing
agreements, rate buy downs, insurance, priority
76
agreements, etc…)
Lessons Learned in CI
• A portfolio approach helps ensure broader blended
returns and helps avoid concentration risk with too
few transactions in too few sectors
• A long time frame is important, together with a set of
financial and non-financial objectives (including
appropriate milestones for development)
• To achieve scale, it will likely be necessary to seek
intermediaries with specific expertise and to package
transactions for multiple investors
77
IV
Developing A Responsible
Investment Policy
78
The Policy Development Roadmap
“Should a foundation be more than a private
investment company that uses some of its
excess cash flow for charitable purposes?”
F.B Heron Foundation Board of Directors
Yes – but how
79
The Policy Development Roadmap
“We want to implement responsible investment…now what?”
initiate
discussion at
board level
set policy
objectives
develop policy
and integrate
identify
implementation
strategy
80
The Policy Development Roadmap
Initiate Discussion at Board Level
• Identify the informational needs for your board. (i.e. How does
RI affect returns? Are other foundations implementing RI
strategies)
• Identify and participate in educational opportunities
• Identify mentors and/or other external experts
• Build your RI team to include staff, board and investment
committee members
• The role of the investment committee is critical – need to
understand their perspectives and constraints and they need to
be involved throughout the process
81
The Policy Development Roadmap
Set Policy Objectives
• What does responsible investment mean for your foundation?
• What are the key triggers that led your organization to consider
responsible investment?
• How can a responsible investment policy be grounded within
the values and mission of the foundation?
• Survey stakeholders to better understand priorities in order to
reflect these in the responsible investment policy
• How does responsible investment fit within your existing
program priorities and activities?
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The Policy Development Roadmap
Develop Policy and Integrate
•
•
•
•
•
Start with an overarching policy statement or philosophy
Look at sample and model policies to act as a guide
How does responsible investment fit within your existing
investment strategies? (i.e. asset allocation strategy,
performance guidelines, investment manager review criteria)
Talk to your investment managers and ask them questions
about responsible investment
Integrate responsible investment principals into your
investment policies or guidelines
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The Policy Development Roadmap
Identify Implementation Strategy
• Choosing your pathway
• Identify the strategies that make the most sense and
meet the priorities and objectives you have laid out
• Incremental approaches allow decision-makers to
educate themselves about each strategy, consider
their value and monitor the results over time
• Pathways could include entering the market
opportunistically or allocating a certain portion of the
endowment for RI strategies
• Some organizations start with proxy voting because it
works with their existing portfolio
• EVERY STEP COUNTS!
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The Atkinson Foundation: A Case Study
Why Responsible Investment
MISSION
…to promote social and economic justice in the tradition of Joseph E.
Atkinson.
INVESTMENT PHILOSOPHY
The Foundation believes that it should implement its mission not only
through the ideas people, organizations and projects it supports, but also
by how it invests and otherwise uses its assets. Ensuring that its deeds
match its words, the Foundation seeks to ensure that its grant making and
investment practices all align with its mission.
85
The Atkinson Foundation
Overcoming Hesitancy
KEY CATALYSTS
• Champions at the staff, board and investment committee level
• Broad ‘theoretical’ support for the need to align grant-making and
investing with mission
KEY STEPS
• Building the collective knowledge of the Board
•Asking questions…over and over again
• Identifying and working with mentors
• Utilizing grant capital to foster a greater understanding of RI and MBI
• And finally…developing the policy
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The Atkinson Foundation
Mission Based Investment Policy
The Foundation is committed to its fiduciary responsibilities and
recognizes that this responsibility does not end with maximizing return and
minimizing risks. The Foundation believes its fiduciary responsibility
includes the consideration of its investment decisions on corporate
conduct, and broader social concerns. The Foundation will pursue MBI
with the following assumptions in mind:
• Evidence demonstrates that MBI does not have to have a negative effect
on financial returns;
• There are no perfect companies; and
• MBI can positively influence corporate conduct, improve stakeholder
relations and ultimately maximize profits.
87
The Atkinson Foundation
Mission Based Investment Policy cont’d
The Foundation will work with its fund managers to develop positive and
negative screens, and to be an active shareholder. The Foundation will
further its mission through investments that:
• Promote high quality, fair and just employment opportunities;
• Support young children and their caregivers;
• Reduce poverty and improve quality of life for the poor;
• Support such other granting themes as the Foundation may
determine from time to time.
The Foundation favours companies that support and advocate for a
strong and effective public sector.
88
The Atkinson Foundation
Implementation…With Some Help from Friends
•
Portfolio audit conducted by Jantzi Research Associates
•
ACF holdings moved to a segregated fund to allow the
Foundation to direct proxy voting and shareholder engagement
activities
•
A set of customized proxy voting guidelines were developed
with support of SHARE
•
Moira Hutchinson joined the investment committee in 2006
•
The Foundation hired SHARE to facilitate a shareholder
engagement program focusing on precarious employment
practices
89
The Atkinson Foundation
Identifying a Focus
• Decided to focus their efforts initially on shareholder
engagement for two main reasons:
• FIRST, the investment committee was comfortable with
shareholder engagement as an initial strategy
• SECOND, they felt that shareholder engagement could be
a complimentary strategy to the efforts of grassroots
organizations that they were providing grants to
• Developed a shareholder engagement program focused on
precarious employment practices in the commercial real estate
sector
90
The Atkinson Foundation
Time for Action – Shareholder Engagement Strategy
• Engagement dialogues underway with two publicly traded
companies
• Management meetings with companies to get more
information on contracting practices
• Multi-stakeholder roundtable to consider the merit of devising
a labour code of conduct or policy
• Working Group drafting a model labour code of conduct for the
commercial property sector in Canada
• Research commissioned that will examine the business case
for good labour practices in commercial property management
91
The Atkinson Foundation
Key Lessons…so far
• This takes time – moving from the theoretical to the practical
proved to take several years in the realm of RI
• Working with the investment committee from the beginning is
crucial and empathizing with their apprehensions
• There are many paths – need to find strategies that meet your
foundations needs and work at a pace that decision-makers are
comfortable with
• Small funds can make a difference
• Change is slow but every step counts
• “We are not done yet”
93
V
Bibliography
94
Bibliography
• Michael Jantzi, Responsible Investing for Foundations –
An Introduction, June 5/08
• Bob Walker, Shareholder Action, June 5/08
• Tim Draimin, Foundations’ Financial Innovation and
Community Investing, June 5/08
• Derek Gent, Community Investing: A Practitioners
Perspective, June 5/08
• Peter Chapman and Shannon Rohan, Responsible
Investment Policy Development, June 5/08
• GEM, Sustainable Investing Handbook for Mission-Based
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Organizations, June 2008.