While talking investing, Sameer Azam brings up the subject of halal meat. Islamic rules known as halal specify the procedures for slaughtering an animal, and they vary among the Muslim traditions.
Faith-based investing is similar, says Mr. Azam, senior wealth manager at Absolute Wealth Management in Mississauga. Basic tenets apply, but they’re open to interpretation and degrees of strictness. For instance, halal investing screens out companies that sell tobacco, alcohol and other obvious vices. Also excluded are companies making money by charging interest. So no bank stocks.
Yet halal isn’t Mr. Azam’s only criteria. Although his approach is halal-friendly, he also looks at larger environmental, social and corporate-governance issues. He advises clients both Muslim and not. And as the market for socially responsible investing grows, the faith-based variety is increasingly joining and selling itself as part of the larger socially responsible movement.
“I am Muslim, but a lot of my clients are non-Muslim. So why exclude them?” Mr. Azam said. “We call ourselves sustainable investors, not ethical investors, because [with] ethics, everybody has a different belief.”
Canadian investments adhering to some form of environmental, social and corporate-governance criteria grew to $1.011-billion in 2013, according to the latest numbers from the Toronto-based Responsible Investment Association. This was up from $601-million in 2011. Pension funds have led the charge, but everyday investors are also increasingly joining the movement.
To Mr. Azam, a healthy, sustainability-minded company means a stock with few sustainability problems, therefore less risk.
At the Mennonite Savings and Credit Union in Kitchener, Ont., the guaranteed investment certificates (GICs) are all sustainability focused and were developed with the aid of Sustainalytics, a global research firm that analyzes the environmental and social performance of companies, says Brian Barsness, the credit union’s director of investment services.
Following Mennonite ethics, the credit union weeds out firms doing businesses in tobacco, nuclear power and weapons, for instance. But it also favours investments beneficial to the environment, human rights, community issues and animal rights. It’s a stand that appeals to many outside the Mennonite community.
In 2010, the credit union opened its doors to non-Mennonites who “espouse to our values and our statement of shared conviction. So we’re definitely growing outside the Mennonite community and are looking to grow that even more in the coming years,” Mr. Barsness said.
The obvious worry among investors is whether screening out certain investments limits choice and, in the end, performance.
That’s been proven “completely false,” said Ron Robins, a financial analyst in Niagara Falls, Ont., who advocates ethical investing and hosts investor workshops.
A Morgan Stanley report in March of 2015 found that “investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments.” The firm studied 10,228 U.S. mutual funds over seven years and found that the returns of sustainable funds were equal to or higher than traditional funds 64 per cent of the time. In addition, it found that sustainable funds had equal or lower median volatility.
Also, Mr. Robins points out, any kind of investing involves a screening process of some kind. “Whether it be a sector fund or a balanced fund, [fund managers] are screening in some way,” he said.
The question is how deeply the screens go. “Certain funds are more rigorous than others,” said Ben Marshall, chief financial officer at FaithLife Financial, a member-directed Christian financial service provider in Waterloo, Ont. “It depends at what level and at what concentration the business is geared toward the prohibited activity.”
What about the shares of a wheat producer that might sell part of its crop to a brewery? Or does the fact that, say, the Liquor Control Board of Ontario is a crown corporation making money from alcohol mean that buying Ontario government bonds is off limits?
Mr. Marshall said that no, there is a limit.
“Very few socially responsible investment providers or faith-based investment providers would go to that extreme. It’s more of an emphasis on what is their core business and what is their main thrust,” he said.
The link between an investment and prohibited activity has to be material, says Fred Pinto, the Toronto-based senior vice-president and head of wealth and asset management at Qtrade Financial Group. The online broker’s Meritas SRI Funds do not allow investments directly linked to tobacco and alcohol, for instance, but it depends.
“Banks could be providing financing to some of those companies as a secondary activity. We would still include the financial institution as part of our investment portfolios because they are not deriving the revenue source from that particularly negatively screened activity,” he said.
The point is that screening thresholds vary among firms. Interested investors need to ask about them, and investment providers needs to communicate them clearly. Some offer room for exceptions, such as Mr. Azam, who said he wouldn’t stop a client from adding a bank stock to their portfolio if they wanted to.
The socially responsible investing industry sees all this as a far step ahead of traditional investing, in which advisers rarely, if ever, offer to discuss clients’ faith or ethical preferences.
“There’s the fundamental rule, ‘Know thy client.’ But they really don’t know their client’s personal ethics by and large. They don’t usually ask that question,” Mr. Robins said. “So, what happens is, a client might be very concerned about animal testing in pharmaceuticals, or whatever. And [they] are put into funds and investment vehicles that don’t really satisfy them.”Report Typo/Error