How does "ethical investment" impact on investment performance? Can Canadians invest ethically and still make the same amount of money as they would if they put their savings into companies that have no socially responsible investing policies or practices?
Jantzi Research Inc. is an independent investment research firm that was formed in 1992. The firm evaluates and monitors the environmental, social, and governance (ESG) performance of global securities. In January 2000, Jantzi Research launched the Jantzi Social Index (JSI). The JSI, is a socially screened, common stock index consisting of 60 Canadian companies that pass a set of broadly based environmental, social, and governance rating criteria.
In creating the JSI, Jantzi Research set out to create a benchmark against which institutional investors could measure the performance of socially screened portfolios. In addition, by tracking the JSI over time, Jantzi Research hoped to answer the question: How does the application of social criteria affect investment performance?
The JSI was back-tested for the period of 1994 to 1999, versus investment data from the Toronto Stock Exchange (TSE). These tests showed how an investment of $100 in 1994 would have grown for the five year period. The results were as follows: . Investment in the JSI companies grew by 18.93 % . Investment in the TSE 100 index companies grew by 18.11 %. Investment in the TSE 300 index companies grew by 17.35 %
This study seems to show that there is little difference in regards to return on investment between investing in ethically selected companies or simply the TSE index of 100 or 300 companies.
The Ethical Funds (EF) Company has been at the forefront of the socially responsible investing (SRI) industry in Canada for over 20 years. EF launched the first SRI fund and fund family in Canada and has also developed a comprehensive Shareholder Action Program.
EF investment statistics show the following numbers for the five years up to March 31, 2008: . Investments in their Ethical Canadian Index companies grew by 17.9 % . Investment in the TSE composite Index of 60 companies grew by 18.5 %
Again, very similar growth numbers, indicating that there is little difference in regards to financial return when people specifically choose to invest ethically.
Canada Pension Plan (CPP):
CPP reports that over the past four years, their return on investment has been 13.6 %. This is almost identical to the past four years of the Ethical Canadian Index used by Ethical Funds to guide their investments.
Other major pension plans, such as the Ontario Teachers Pension Plan (OTPP) and the Ontario Municipal Employees Retirement System (OMERS) show very similar levels of growth.
A Note on Ethical Investments:
Companies that aim to be more ethical in their investments usually screen out the worst of the worst companies (i.e. companies that derive a certain percentage of their revenue from weapons manufacturing). However, ethical screening does not necessarily mean that investment companies don't purchase shares in extractives companies, tobacco or giant retailers. Many ethical investment companies choose to invest in these industries rather than screen them out; they prefer to engage in dialogue with companies about issues such as human rights, climate change or corruption. All ethical investment programs have their own screening processes and criteria for investment. A company's performance is often reviewed against the investment fund's criteria, and if the company is found to be in repeated violation of the criteria or ignores problems, the investment fund may choose to de-list the company from their portfolio if all other means fail. The companies listed in Share Power over the last three years are all held by ethical investment companies.