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Investing the socially responsible way Add to ...

Michael Jantzi is one of the pioneers of socially responsible investing, the concept that taking into account environmental, social and governance issues can give investors an advantage, and not just soothe their consciences.

His clients are mostly forward-thinking institutional investors, who use his firm’s detailed research to help make their decisions.

Mr. Jantzi’s firm became a global player in the socially responsible investing game when it merged with Europe-based Sustainalytics in 2009.

Why should investors buy socially responsible investments?

A company is like an iceberg. An investment manager should know as much about the risk of investing in that iceberg as they possibly can. If they are using only the tools that fit into the financial toolbox, they are only getting what is above the surface. In today’s world, if you don’t understand environmental issues, the social issues and the governance issues that confront a company on a day-to-day basis, then you are investing without full knowledge, and the risk-return equation can be completely misaligned.

I’ve never said that if you integrate environmental and social issues into an investment process you’ll make more money. But I’m perfectly comfortable saying that there is no reason to go into that exercise with the thought that you are going to lose money.

How have investor attitudes toward social investing changed in the past decade?

Now there is a much better understanding in the mainstream investment community that environmental and social issues can be material, especially over a longer investment time frame. Some of the largest, most sophisticated investors in the world are coming into the responsible investment camp, not because they think it is the right thing to do, [but] because they believe it gives them better insights and mitigates the risks.

Where is Canada on this issue?

Well, not on the leading edge, unfortunately. If you talk to investors in the U.K. or on the continent, or in Australia, you tend to have conversations that are a little bit farther ahead of the game. [But the] Canada Pension Plan Investment Board, British Columbia Investment Management Corp., and the Caisse de dépôt [et placement du Québec] are leaders here, and globally.

Are there some less tangible benefits to social investing?

It provides you the opportunity, to a partial extent, to align your own personal values and goals with your investment decisions. That is an empowering and powerful exercise in and of itself. [That’s important for] religious organizations and environmental groups – any organization that has a mission at its core. It has long perplexed me that [some] organizations try to do everything with care and consideration and in line with their mission and values, except when it comes to their investing.

Are companies doing a better job of reporting the environmental and social impacts of their business?

They are looking at environmental and social issues in a more formal way as part of their business decision-making. More industries are seeing the need to disclose their environmental and social performance in the same way that they do their financial performance.

There are a growing number of stock exchanges that have listing requirements which include environmental and social reporting. [Some] securities commissions are focusing a lot more on it, including the Ontario Securities Commission. And there is a lot of work right now that is focused on integrating social or environmental or health and safety [issues] into the broader financial reporting regime.

How does your staff evaluate companies?

We have about 60 analysts around the world right now. [Each one is] a cross between an investigative journalist, a private detective, and a traditional financial analyst. Their job is to put the pieces of the puzzle together. At the end of the day we’re not going to get every piece, but we will get enough to get a pretty clear indication of what a company is all about.

What are some of the key measures?

On the environmental side, carbon intensity remains critical. Water [use] is obviously another key issue that we have been tracking for a long time, and its impact crosses sectors and industries.

On the social side, we have long looked at human rights issues. Ten years ago companies viewed human rights as a values-based issue. Today, human rights is understood as a hard-core business issue.

How do you measure something as amorphous as human rights performance?

First, you try to understand what risks a company faces – what type of business they are in, and where they are operating. Then you look at how the board and senior management identifies those risks, audits them, and how they are responding to issues.

Are certain sectors, such as tobacco, weapons manufacturing or nuclear power, still absolutely verboten for some investors?

Generally tobacco has remained one of those areas that many investors tend to shy away from. In Europe and in Canada, even the largest institutional investors shy away from investing in companies that are involved in cluster munitions or land mines. But I can’t think of an institutional client we have – like a large pension or sovereign wealth fund – that would outlaw [nuclear investments] outright, or anything associated with the industry.

What are some of the regional differences in social values that come into play?

In the U.K. animal rights issues have more predominance than they would in other parts of the world. Germany has a much greater focus on [nuclear power issues]. In France, there is a social focus – on labour-employee issues or diversity issues.

What are the biggest environmental, social and governance concerns in Canada?

Canada has a pretty good balance between the social and the environmental. From the outside, I hear sometimes that Canada is focused on environmental issues. It is true, but by the same token Canada has taken the lead globally on some really critical social issues [such as] land mines and cluster munitions. Diversity issues, especially as they pertain to indigenous or native rights, have long been something that we’ve focused on here, and they are now gaining some prominence in other parts of the world.

Are the oil sands an ethical investment?

We are sitting on the second largest deposit of oil and gas in the world. I understand full well that is probably the ugliest, dirtiest, most energy-intensive industry on the face of the planet. [But] it is a resource that will be developed and exploited. You can ignore it and stick your head in the sand, but it is not going to go away.

My view is that we need to ensure that it is developed in a way that is sensitive to environmental and social issues. I can’t argue that responsible investment should ignore that industry. They have a responsibility to engage with companies in that sector.

Are the oil sands players sincere with their sudden openness to discuss environmental issues?

They understand that they are in a war, and that they better start fighting it in a different way. But there is a lot of innovation that’s come out of the oil sands too. Despite the ugly nature of the business there are companies there that are trying to operate, and have long tried to operate, in the most sustainable way they possibly can.

Did the recession slow the shift to responsible investing?

Quite the opposite. I think some of the things that social investors have been talking about for a long time – transparency, disclosure, and a shift in focus from the short term to a longer term – conspired to make [this philosophy] come out of [the downturn] a little bit stronger.

How do investors interested in sustainability evaluate companies that are involved heavily in both oil extraction and renewable energy?

That is a huge dilemma. You will find companies in the oil sands that are the largest investors in renewables in the world.

Is green-washing – making unfair corporate claims of environmental friendliness – a big problem?

I think it is the reason we exist, to a certain extent. Our job is to ensure that [corporate] performance matches the rhetoric.

About Michael Jantzi

Title

- Chief executive officer, Sustainalytics

Personal

- Born in London, Ont.; 47 years old

Education

- Bachelor of arts in political science, University of Western Ontario

- Master’s in international relations, Dalhousie University

Career highlights

- Founded Jantzi Research in 1992

- In 2000, launched the Jantzi Social Index, a 60-stock index of companies that meet environmental, social and governance criteria

- In 2009 merged his company with Netherlands-based Sustainalytics

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