Why I’m a yappie and why you might be, too.

Here are two exchanges from a conversation-provoking video just posted by Wong Fu Productions:

Scene 1: Well-dressed, clean-shaven Andrew stares at his date as she sighs at him:

Woman: “All you care about is earning a nice salary, buying a nice car, and settling down in a nice suburb.”

Andrew: “That sounds like a nice, normal person! What’s so wrong with that?”

Woman: “It’s not wrong. It’s just… safe. Listen, we’re just not the right fit. I need to be with someone who, you know, cares more. About the world.”

Scene 2: Andrew drowns his sorrows at a club with his friend, another Asian in her twenties:

Andrew: “The way this girl said it made it sound like a bad thing. Like it’s safe.”

Friend: “Well, we are pretty safe. We just got $17 cocktails and we’ll be completely fine. And we gotta wake up early to meet Mom and Dad for breakfast tomorrow. We live a pretty cushy lifestyle. But we chose the safe route because it’s what we wanted.”

I’ve been fascinated recently with cultural legacies after reading Malcolm Gladwell’s look at success, Outliers. In the book, he draws attention to the uncomfortable idea that most North Americans try to not think about, or at least avoid in conversation: cultural legacies matter. Where our families come from shapes how we think, the kinds of messaging we respond to, and what values drive us. And for Asians, stability is golden. I’m a wannabe yappie, a young Asian professional who wants to take the safe path in life. Life goal is to make a comfortable, stable living with a nice car and home in the city? Check. We play it safe. We go for stability over adventure, normal over excellent, and don’t put that much thought into trying to improve the community or make a lasting positive impact on the world. But why? Why have we decided this is the optimal path?

It’s not just an academic question for me. I just left a permanent, full-time job for a contract role in non-traditional, not-that-well-paid, environmental communication. Eef. If your Asian side just felt its skin crawl, well, mine did too.

There’s a whole number of reasons why I’m hard-wired to seek personal and familial stability rather than strive to better the world. According to 2016 World Bank statistics, the population density of China is almost 40 times higher than that of Canada. How’s that for competition?

And it’s not just my survival that’s at stake; it’s that of my parents and of my future kids. We’re obliged financially upwards and downwards because of filial piety, 孝, one of the pillars of the Chinese value system. (The character 孝, by the way, is composed of the abbreviated form of the character for ‘old’, 老, and for ‘son’, 子. Cool, eh?) I’m responsible for the well-being of my parents and you for yours. My parents gave their parents a third of their salaries every month. I’m responsible for the financial security and comfort of my parents. With that kind of responsibility, who has the emotional energy to make the world a better place? That’s simply not high up enough on the priority list.

Struggling through hardship, and trying to create circumstances that protect the family from that level of suffering, is also in the blood. If you’re an immigrant from a poor part of the world, you probably don’t have to look far back in your family history to find poverty. Until he was in high school, my dad slept under a bed. There wasn’t any other space in the one room he shared with his six siblings. Lunch was rice with soy sauce.  With that kind of inter-generational experience, little wonder we’re hard-wired to crave stability.

We are a people of hardship. It isn’t just financial struggle. Odds are, you know someone or are related by the second degree to someone who fought for their life. A husband of a fellow choir mate MacGyver-ed a life float with hundreds of ping pong balls and a fishing net and swam his way to Taiwan from China. The cousin of another choir mate swam for two days from Guangzhou to Taiwan with a basketball under one arm. He started the journey with a hundred others. Half of them made it.

We struggled hard to make it to this country, and we’re going to be successful, danggit. And that perspective of the world doesn’t have room for bettering the world or pursuing your passions.

Times have changed, but that doesn’t matter. You can purchase land (land! The Chinese dream!) for $75,000 and put a tiny home on it for $30,000. An 18-kilogram sack of rice costs you all of 25 bucks. You and I and our families are going to be just fine. Maybe.

In the same way our grandparents struggled for survival during the Great Chinese Famine or the Japanese occupation or broke their backs as coolies, as our parents did when they moved to North America and took minimum-wage jobs, we too are programmed to struggle for survival. It doesn’t matter that you and I can buy a month’s worth of rice after working for two hours at some minimum-wage job. My body doesn’t tell itself that story. Ever so often, just as I’m about to drift into a pleasant sleep, a voice in my brain tells me I should have been an accountant.

I quit a full-time permanent job in May and that decision gave me anxiety for a month. It still does, at times. And social pressure doesn’t help either. My uncles and aunts and family friends sat my dad down for talks, concerned about the wayward child and ultimately about the success of the entire family. Regardless of how valid or what my reasons were, it doesn’t matter. I’m not certain my parents are proud of me. When you lose stability, you lose respect and your family falls behind.  And with that kind of weight around your neck, who could afford instability?

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Diversity in the environmental movement: why it matters

While marching with other protesters on Burnaby Mountain last month, I couldn’t help but feel disconcerted. Out of the hundred people that were at the terminal, maybe 20 of us were people of colour or Indigenous.

The environmental movement is woefully homogenous. A study by the University of Michigan found the percentage of staff who are members of ethnic minorities in the almost 300 American environmental institutions they studied is less than 16%. In addition, staff members of colour often hold lower positions and rarely rise to positions of power. A David Suzuki report concluded Canada’s environmental movement also faces diversity issues.

We cannot afford to exclude people of colour, however unintentional the exclusion. In addition to the desire to uphold ideals of diversity, there is a practical need for the movement to be diverse. In five major B.C. cities, visible minorities are now the majority. By 2036, Statistics Canada forecasts the number of Canadians who are visible minorities could double to 16.3 million.

What can environmental organisations do to change the status quo? Firstly, implement the Rooney Rule: interview at least one person of colour for every position, including senior leadership positions. Secondly, review the available resources on engaging communities of colour; the David Suzuki Foundation published a report last year that serves as a good starting point. Thirdly, just start. The Ancient Forest Alliance, for example, has started holding tours in Mandarin of Stanley Park. Not everyone is an ‘environmentalist’, but everyone has a stake in environmental issues.

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Will investing responsibly cost you money? Pt. II

Here’s the lowdown from a Morgan Stanley review of sustainable investing:

We ultimately found that investing in sustainability has usually met, and
often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time. – Morgan Stanley Institute for Sustainable Investing, 2015

I should emphasise again that “sustainable” is not a magic label; investing in a sustainable mutual fund doesn’t guarantee you above-average market returns and a glow in your cheeks from doing good. Do your due diligence. What the studies do point out is those who blanket the industry in a coat of non-profitability haven’t done their homework.

How do we know ESG improves a company’s bottom line?

Or in other words, is SRI even worth thinking about in the first place?

Simply put, yes. Study after study consistently show ESG helps a company make more money.

Since the 1970’s, researchers have studied the link between ESG and financial performance. The largest meta-analysis of SRI and financial performance by the Deutsche Asset & Wealth Management and Hamburg University in 2015, a massive study of 2000 studies and the largest what’s been billed as the “most comprehensive review of academic research on this topic” concludes definitely yes, SRI can be profitable. Comfortably so. 95% of the studies show a positive correlation between ESG factors and corporate financial performance.

But that still means you need to do some homework

Otherwise known as ‘yes, you could make money, if you choose your funds, indices, and managers carefully’.

A caveat is this: studies based on portfolios tend to show a neutral or negative correlation between CFP and ESG factors, which is something your average investor (likely you) should sit up and pay attention to. Even if companies post higher profits because of ESG factors, fees of portfolios may leave you, the investor, with little of that extra profit. mutual funds, like other funds, have fees: management fees, trading costs, etc. With the 2.5% average annual total fee of mutual funds, you as an investor purchasing an ESG mutual fund might see your extra ESG returns being swallowed by fees. If you do your homework, however, there are profitable options.

Reasons why people believe SRI will cost them money

1) Deciding on what companies are ‘socially responsible’ is difficult and costs investors extra money.

First part is true, second isn’t necessarily so. Meta-analyses of SRI like this one show that, at worst, SRI will not cost investors extra money. The returns of your SRI portfolio depend largely on the skill of your fund manager. Yes, making profits is possible, and  read the fine print before you buy.

2) With a smaller pool of companies to invest in (a limited investment universe), you have increased risk and lower expected return.

A reasonable theory at first sight, but too simplistic. Instead, the relationship between screening intensity and corporate financial performance is U-shaped: no screening is better than a low degree of screening, but intensive screening of companies leaves you with the best-performing companies with high rates of return.

4) SRI portfolio managers charge higher fees than conventional portfolio managers

Some do. So pick your portfolio managers wisely.

5) You’re better off making money conventionally and using your earnings to do good.

Assuming all conventional investments fare better, which we’ve already discussed is not the case.

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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.

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Foundations look to increase impact with responsible investing

The Inspirit Foundation has committed to achieving a 100 per cent impact-investment portfolio. Some foundations are looking to create more impact by investing their grant capital in values-aligned companies.

Originally published at Clean Capital.

With low interest rates and smaller funds for grants, foundations are looking for another way to increase their impact.

Business ethics expert Christie Stephenson has noted in the last five years a significant increase in foundations redirecting their endowments from traditional investments to companies with social missions. Not only are more foundations interested, she said, they’re willing to invest a larger proportion of their endowments in responsible investing.

“Five years ago, foundations were maybe setting aside one or five per cent of their assets,” said Stephenson. “We’re [now] actually seeing the first examples of 100 percent impact-investing portfolios.”

An example is Inspirit Foundation, she said, which has committed to achieving a 100 per cent impact-investment portfolio.

Stephenson, the Executive Director of the Peter P. Dhillon Centre for Business Ethics at the UBC Sauder School of Business, theorised the low-interest rate environment could be a motivating factor of the recent interest. Foundations realise traditional investment methods aren’t generating a lot of funds for grants given the low interest rates, she said.

“Instead of making money any way then can and then giving grants, they can instead . . . mobilise their [entire body of] assets,” said Stephenson.

The topic begs the question: can responsible investments generate average-market returns or better?

For the foundations Stephenson has studied, at least, “not only has nothing catastrophic happened . . . things have gone very well for them.”

The new field of responsible investing has its growing pains, such as a lack of readily available information for individuals and organisations who want to invest responsibly. Despite the information gap and the nascency of the field, Stephenson is confident that there are opportunities available for those looking to invest responsibly.

“It does take a bit of digging,” she said, but noted there are options available to investors such as socially responsible mutual funds, community economic development funds, and companies like CoPower and WindShare which help individuals invest in renewable energy projects. Resources are also available from the Responsible Investment Association trade organisation.

“If millions of people put even a little bit of money into responsible investing, it would fundamentally change the investment landscape in this country,” said Stephenson.

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You sure that’s green?: a look at corporate green bonds

Originally published in Clean Capital.

Green bonds may be a way to finance climate change solutions, but some may not be as ‘green’ as they look.

Director of the Sauder School of Business Prediction Markets at UBC, Dr. Werner Antweiler cautioned in a phone interview that green bonds now offered by corporations “may, in some cases, amount to greenwashing.”

“Originally, [the green bond market] was very different from what it has morphed into today,” he said.

Green bonds are understood as products issued to raise money for sustainable projects. The green bond market has seen a growth of offerings in recent years, with issuers such as the World Bank to governments and corporations entering the market. Last year, Apple and Starbucks made headlines by issuing $1.5 billion and $500 million respectively in green bonds.

Some organisations assert green bonds are key to financing the infrastructure needed to prevent dangerous climate change. The International Energy Association estimates that the energy sector requires $53 trillion in green bonds by 2035. According to a recent report, $694 billion of a subset of green bonds, ‘climate-aligned’ bonds, were outstanding in 2016.

Dr. Antweiler cautioned that the green bond market needs more third-party certification and uniform standards across the industry before buyers can be certain their money will have a sustainable impact. Standards for green bonds such as the Green Bonds Principles exist, he noted, but adhering to the standards is voluntary. There are no mandatory requirements to measure the impacts of projects funded by green bonds, said Dr. Antweiler.

“Once you have people . . . willing to pay a premium for something they consider green,” he said, “you get a lot of imitators out there who say ‘hey, wait a minute, I’ll just claim to be green.’”

He also noted that corporations may issue green bonds to raise money at lower cost to finance projects they would have undertaken regardless.

Until the industry develops a mandatory certification process, Dr. Antweiler urges buyers to remain cautious. Another alternative for a socially minded small investor, he noted, is to invest in indices that exclude certain sectors.

Other tips for making an impact with your money? “Do green things. Buy green things,” said Dr. Antweiler. “Instead of buying a fuel-inefficient car . . . buy a hybrid car. The real [changes] are decided on the demand side, and not on the financing side.”

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CoPower: invest responsible with just $5,000

If you have $5,000 and are looking for an easy way to get started in socially responsible investing, CoPower is it.

On Tuesday, March 7th, the Board of Change hosted a panel discussion with CoPower’s Director of Investments, Trish Nixon, and Vancity’s Vice President of Impact Investing, Christine Bergeron, to discuss how average investors can do good with their money. Christie Stephenson, Executive Director at UBC’s The Peter P. Dhillon Centre for Business Ethics, moderated the discussion.

An opportunity to invest responsibly, see tangible social results, and not need millions or a trust fund to do it? You can pinch yourself to check; it’s not just a dream anymore. With Canadian clean energy investment company CoPower’s new bond offering, impact investing just laid out a welcome mat to the average investor.

The traditional problem with impact investing, noted Vancity’s Bergeron, is its lack of diversity and accessibility. Investments considered too risky for the average investor are the norm with impact investing; the market is accessible largely only to accredited investors (individuals who meet financial standards such as a net worth of over $1 million excluding real estate).

For Nixon, CoPower marks a shift in that trend. According to the company’s director of investments, CoPower’s current green bond offering is both a significant financial opportunity for investors and a chance to democratize the financial markets.

“There’s a huge opportunity to move significant amounts of capital [towards] clean energy and impact when we empower individuals to do so,” said Nixon. “Individuals… want to invest according to their values.”

CoPower is now offering three and five-year bonds with interest rates of 3.5% and 5% respectively. Investors can receive quarterly interest payments or reinvest the payments. The minimum investment is $5000, and the principal is repaid at maturity. Investments are RRSP and TFSA-eligible with an additional fee.

CoPower green bonds are not liquid and do not have a secondary market, said Nixon, and likely won’t make up an investor’s entire portfolio. However, CoPower green bonds could be an ideal component of a portfolio, she noted.

Nixon sees large growth ahead for CoPower and the impact investing field in Canada. “In the next three years,” she said, “we want to move $100 million in assets to clean energy and I think we’re on track to do that.”

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Will being a socially responsible investor cost you money?

The short answer is ‘probably not’.

If you’re new to SRI, you should check out this page on what SRI is. I know, that doesn’t sound nearly as interesting as whether SRI will make you money, but the answer isn’t straightforward and you do need a way to assess this information for yourself. If you’re looking for a TL:DR version of this, you should probably head straight to talking to an SRI financial advisor.

One thing to keep in mind is the debate tends to be ideological. Traditional fund managers dismiss SRI as a millennial or hippy preoccupation. On the other end of the spectrum, there are those who insist of course, SRI makes both your heart and wallet swell. On this blog, we stick to the facts.

Now, on to the meaty bits.

Why the ‘logical’ argument against SRI doesn’t always hold

Here’s the traditional argument in a nutshell. A portfolio with as many options as possible allows you to put your eggs in a multitude of different baskets, lowering your expected volatility and increasing your returns. SRI is all about excluding options, not investing in companies that don’t share your ESG values. If you put your eggs in ten baskets instead of fifteen, say, what will you do if a careless rooster comes along and upsets five of them? SRI decreases your portfolio efficiency (and your retirement income), say traditionalists.

But what if the options you remove are the less-attractive options? The financial argument for SRI comes from the theory that socially responsible companies are better investment options because of the ESG values they operate by. Ensuring your supply chain is sustainable, for example, means a lower risk of unexpected supply limits or government regulations. Similarly, companies with better corporate governance have more fulfilled and productive employees. Yes, SRI means taking away options, but they were the options you didn’t want in the first place. It’s not merely a pleasant theory; studies show no significant differences in the performance of SRI and conventional indices.

But here’s the rub: there are instances in which this argument holds. Yes, there are studies which show SRI indices outperforming conventional indices. However, indices are populated with companies considered socially responsible, but certification for social responsibility is like the Wild West. If you invest in companies that are poor investments, period, a ‘socially responsible’ label doesn’t add a magic touch to their ability to earn you money.

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