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Wednesday, January 22, 2020
Connecting Our Communities

Investments have consequences

Socially responsible investing, which today comes without tradeoffs, is becoming mainstream, says Kindred study


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Investment dollars can beget more than financial returns: there’s a societal benefit to be had if enough people put their money where their values are.

An organization with faith-based roots, Kindred Credit Union long operated on the assumption its members were more attuned to socially responsible investing – whether avoiding the likes of arms manufacturers or backing environmentally friendly undertakings – but a recent study shows that is in fact the case.

Moreover, the membership numbers are part of a broader shift to socially responsible investing, or SRI. A 2018 report from the Responsible Investment Association of Canada, for instance, notes that SRIs make up more than half (50.6 per cent) of the investment industry holds, up from 37.8 per cent just two years earlier.

The study carried out for Kindred puts some hard numbers to the belief its members are more likely to back ethical investments, said Frank Chisholm, the financial institutions director, brand and marketing.

“We thought it would be a good thing to delve into this even deeper … to test some of the presumptions,” he said of last week’s release of the study’s findings.

“That was our hope, that our members were more aware of socially responsible investing,” added Brian Barsness, director of investment services.

The study also included a survey of those in the wider community.

“We wanted to get an understanding of those outside our membership group.”

Kindred members are more attuned to SRI offerings, and the percentage is growing, along with awareness in the general public.

In surveying its members, Kindred found more than half deemed it “very important” to avoid companies involved with pornography/adult entertainment, military and weapons, gambling, and tobacco – a so-called negative screen to limit investments in such firms.

On the flipside, positive screens evaluate companies based on the good they do and strive to include those that engage in practices that support animal welfare, international labour standards, and the environment, for example. Some two-thirds of Kindred members said it was “very important” to have positive screens for transparency with the public and leadership being held accountable, as well as protecting or enhancing human rights.

Screening is a filtering process based on social and environmental criteria that are used to identify if an investment can be deemed socially responsible, Kindred notes.

Responsible investing involves a variety of values-based decisions, often boiling down to the preferences of individual investors.

The choices of the credit union’s members and the wider community reflect that philosophy, accounting for the growth in SRIs. And what’s driving that?

“That question comes down to the individual investors and their values,” said Barsness, who adds that the share of investments going into SRIs has more than doubled in the seven years since he joined the company, for instance.

“It has been growing in leaps and bounds, not only at Kindred but across Canada in the industry as a whole.”

Given the Anabaptist roots of Kindred – formerly Mennonite Savings and Credit Union – there’s long been a peace and social justice component to the membership.

Today, there are issues that are top of mind, from climate change and the environment to the MeToo movement and the link to pornography, for example.

“We believe there is a connection between investing, be it with time or money, and making a difference in the world. We want to support and empower our members to make financial decisions that have a positive impact on the world,” the Kindred study asserts.

Where once there was a component of sacrifice in socially responsible investments – both in terms of returns and in diversity in a portfolio – there’s been a 180-degree turn on that front, says Barsness, who notes elements of SRI have now gone mainstream.

In fact, SRI is “a better way to invest” due to the decreased risk, he added.

“There are numerous studies that show you don’t have to give up anything financially to invest responsibly.”

Controversies and public backlash can dramatically shift stock prices and even companies’ fortunes. Fines, lawsuits and other legal wranglings can ensue when a company isn’t operating on the straight and narrow. By avoiding such stocks in the first place, investors can buffer themselves from the downswings.

The ethics of some companies – think of the likes of Enron and the Wall Street firms responsible for the 2008 financial meltdown – can be a factor in one’s investments taking a nosedive. Again, avoidance can be a prudent move.

Given the shifts in investor thinking, a whole industry has emerged to assess the social responsibility exhibited by companies, the better to guide SRI.

The key now, says Kindred CEO Ian Thomas, is getting the word out so that more people can make informed choices.

“One of the elements here is our role as educators,” he said of a concerted effort to let people know their investments can make a difference.

“We tie it back to our members – what’s important to [them]. It’s linking values to objectives, painting a picture that the members have options,” added Thomas.

“We want people to be able to say ‘I can really feel good about what my investment is doing.’”

From individual investors making choices and the likes of Kindred Credit Union pushing for responsible investment, small moves can have a big influence on the broader market, Thomas maintains.

“Business can be a force for good.”

The financial services industry needs to make people aware of their options in that regard, added Barsness, noting Kindred has a role to play.

“We have to let our investors know that they can invest with their values.”

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