Credit union dances with investment ethics
The debate over ethical investing or socially responsible investing has been going on for at least a couple of decades now.
On one side are the folks who believe that it's possible to make money and change the world for the better at the same time.
On the other, those who argue that it's a mistake to mix what should be straight business decisions with moral or ethical judgments.
TV celebrity stock picker Jim Cramer says, for example, there is only one commandment for investing: "Thou shalt make money."
In its own operations, the Vancouver City Savings Credit Union has been firmly of the camp of the do-gooders. Van-city has a board of directors with impressive left-wing credentials for service in politics with the NDP or the labour movement and a record of sup-porting community activism, community service and making a respectable profit.
According the 2011 annual report, it is the largest community credit union with $16.1 billion in assets. It's a living-wage employer that makes "good money by putting money to good."
"Vancity's vision of redefining wealth incorporates personal and community well-being."
All of which made it a bit of an odd target for a threatened boycott from an environmental group.
But after discovering that Vancity sells mutual funds that include Enbridge, the company trying to build the proposed $5.5-billion Northern Gateway pipeline from the oilsands to a tanker port in Kitimat, a Vancouver Island group that calls itself Wildcoast.ca headed into Vancity's annual meeting this week with an ultimatum:
Get out of Enbridge or we'll pull our funds from Vancity.
As it turns out, Vancity was already taking action on the Enbridge file. Vancity joined with two other institutional investors in a motion at Enbridge's annual meeting in Toronto on Wednesday calling on the company to provide information on the risks to the value of the company from pushing ahead with the Northern Gateway pipeline in the face of fierce opposition from first nations along the route.
In an interview Thursday, Vancity president and CEO Tamara Vrooman said the motion was an example of the approach the credit union takes to investing. It tries to use a stake in a company to leverage improvements.
That's a long-standing practice with large investors that feel they know better than management about how a company ought to be run. But in addition to profitability, Vancity is also looking at the social and environmental bottom lines of the companies it has a stake in, just as it does with its own operations.
"We take what we call an ESG shareholder engagement approach," she said. That's E for environment, S for social and G for governance.
"It's the same case with Enbridge," she said. "We want to understand the risk that's introduced when governance, environmental or social issues are ignored."
The risks Vrooman's talking about here are not the risks that offend pipeline opponents, but the financial risks that might flow from pushing ahead with such an unpopular project. It's part of a philosophy that holds that there is no conflict between maximizing profits and good corporate citizenship.
One of the pillars of ethical investing is that companies that ignore environmental, health or social concerns are ultimately bad investments based on purely financial criteria. Oil spills are bad for the environment but they are also bad for business. Mega projects that get bogged down in legal challenges can be catastrophic to the bottom line.
Enbridge had a good risk profile before the Northern Gateway proposal, Vrooman said. Now there are issues that management are going to have to address.
Hence the motion at the Enbridge annual meeting, which at the urging of management, was defeated.
That decision may well lead to Vancity parting ways with Enbridge. But not yet.
Vrooman says Vancity will continue to monitor Enbridge and "make investment decisions based on the risk return parameters that we promised our investors when we offered those mutual funds."
That position probably won't satisfy people who see investing in Enbridge as dancing with the devil, but for investors with a triple bottom line it may yet pay off.