The Right Stuff
July 01, 2008 | Brooke Smith

…cont’d

Communication was an issue, too. “This is a fund that members need to understand but must choose to participate in if their beliefs align with the screens,” says Koza. “We knew that we didn’t want to be in the position of describing and updating the screens to our members. Our pension committee didn’t want to be seen as the one making the calls of socially responsible behaviour.” The providers, Mackenzie Investments, and its portfolio manager, Aberdeen Asset Management, have made presentations to the university’s employee groups. “We’ve been able to get the service level we need on the communication side from those two groups.”

Western did not have consensus within the pension board for this plan offering. The board, consisting of economists, actuaries and finance professors, is both a plus and a minus, as Koza sees it. “There’s a combination of traditional thinking and abstract thinking,” she says. “The more traditional economists and finance professors were not in favour because they understood the old studies that demonstrate that as soon as you put screens on a portfolio, you’re eliminating opportunity in terms of return.” Koza said part of the struggle was getting sufficient evidence that there would not be “systematic drag” on the returns because of the screens.

Enefer says the experience has been smoother for BCIMC. “I’m not saying it has been easy,” she says. “We are all capitalists at heart, and it is very difficult to consider areas that first, don’t lend themselves easily to being quantified, and second, have been attached to non-government organizations, religious orders or parts of the economy we haven’t collided with before.”

Neither BCIMC nor the Caisse encountered much resistance from their boards. The Caisse received its mandate directly from its board of directors, and BCIMC’s four largest pension plans have SRI wording in their investment policy statements. “Their mandate to us is to manage with an ESG hat on, if you will,” says Enefer. “So there’s a clear instruction from our clients.” However, both BCIMC and the Caisse note that implementation is a progressive process. Good Intentions But even with the best of ESG intentions, pension funds can find themselves involved in some controversial developments. BCIMC, for instance, is looking at investing in an electricity project in southern Chile, which, according to conservationists, will swallow up what little is left of the untouched natural lands in Patagonia. “We’re considering all voices,” says Enefer. “We’re still exploring all of the risk/reward parameters around it. We’re in a discovery stage. With all of the information that we collect through this review process—and given that we need to deliver a financial return to our clients—balancing all of those, we can then make a decision.”

And some of the more emotionally charged investment opportunities are difficult to pass up. For example, BCIMC invests in tobacco yet manages money for healthcare workers. “However, we must look at tobacco companies with a risk/return view.” Put another way, Enefer says: “They do not lend themselves to being eliminated.” And because the Caisse does not use screens, those investment opportunities are not off limits. Tobacco investments can produce exceptional returns: since the end of 2000, an index of tobacco companies has jumped almost 300%. As of March 31, 2008, the Caisse held $24.6 million in tobacco stocks.

Western, too, faces challenges. Students are currently voicing their concerns about the university’s endowment fund investment policy (a portfolio managed separately from the retirement plans), which does not specifically restrict investment in companies that are considered to be supporting poor human rights in Sudan.

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