Socially Responsible Investing

Having clear expectations

What shade of green can we strive for?

One thing that’s puzzled me about SRI is what constitutes as a ‘green’ or ‘responsible investment’. The Jantzi Social Index (JSI) Exchange Traded Fund (ETF), for example, is often seen  as the benchmark of the industry. It’s the first socially responsible ETF available in Canada. You or I could purchase the Jantzi Social Index ETF with RRSP or TFSA funds. (For another critical look at the sustainability of the JSI ETF, see the post by the Sustainable Economist.) The contents of the fund, despite its lofty background, don’t inspire me. Check out the list of top ten holdings (on 6 Nov 2017):

JSI top ten holdings

It’s hard to be excited about this list. The argument that RBC or TD Bank will quicken us to a low-carbon economy, which is one of priorities, is difficult to sustain. I don’t believe in divestment from fossil-fuel producers as a matter of principle, but having Suncor hold a weight of 8.18% does not convince me that this investment option will help me achieve my priorities in the world.

Let me pull back for a bit. I task myself with not passing judgment before having a clearer picture of the situation. J.P. Harrison, President of Genus Capital, was kind enough to sit down with me and give me a clearer picture of the SRI world. One valuable lesson I took away from the chat is the reminder to be clear and realistic about my expectations of investment products.

You can think of investment options in the SRI space as one of three shades of green, suggested J.P. There are the low-green options, those that regard environmental, social, and governance (ESG) considerations of a company as three factors in a large pool of factors of whether to invest in that company. Medium-green options are those like the Jantzi Social Index ETF. They employ negative screensno tobacco, say, or no weapons, or in some cases, no fossil-fuel producers. According to the official methodology of the JSI, companies that derive revenue from weapons manufacturing, nuclear power or tobacco, or have “major negative ESG impact”, are excluded from the index.

I’ll state upfront that the JSI ETF methodology does not inspire me. But this chat with J.P. reminded me that in social finance, as in life, black and white exist only in shades. To ask a fund to offer up only ‘good’ investments without a whit of grey is nigh impossible. Values and clear priorities must be coupled with the pragmatic understanding that ‘adequate’ is sometimes good enough.

If ‘medium green’ could be defined as ‘not financing the bad stuff’, suggested J.P., then ‘dark green’ would be financing only the good stuff. Instead of screening out companies, one would screen in companies with values aligned to yours. (A plug for Genus Capital: they offer Fossil-Free portfolios for individuals and families, pensions, and foundations.) And which companies or funds would be in this ideal category?

To be honest, I’ve been thinking this would be the same stuff unicorns are made of. If you were an accredited investor, you would have riskier options. Over 400 funds are available for your perusal at ImpactBase. Renewal Funds, for example, screens in companies such as Mama Earth Organics and Seventh Generation and requires a minimum investment of $500,000.

What about people like me, with more interest than money? I could put money into the Jantzi Social Index ETF. That could be a valid option for now, but I want something else. I want an investment options that are dark-green, like the needles of the Douglas Fir and halfway as stable as a rock. Do those exist?

p.s. As with all posts that mention interviews, I attribute all useful information to the kind experts who shared their time with me; I claim all errors and knowledge gaps.