| Socially Responsible Shareholdership in Canada |
INTRODUCTION
Institutional investors are becoming increasingly aware of the need to examine their investment policies for social responsibility issues. The Social Investment Organization estimates that there is $50 billion in socially responsible investment assets in Canada, and three-quarters of those are represented in the institutional market.
Pension funds, religious organizations, foundations, endowments and public institutions, such as hospitals and universities, are asking their investment managers and advisors for policies and procedures to manage their money in socially responsible ways.
In most cases, social investment means screening -- negative or exclusionary criteria to rule out certain stocks, and positive criteria to actively seek out certain companies representing social and environmental leadership.
However, this is just one approach to social investment. Another approach -- known broadly as shareholder advocacy -- is also gaining ground as a prudent and socially effective way of managing assets. Such active, or socially responsible, shareholdership is a means by which shareholders influence corporate policies and actions on issues ranging from corporate governance to environmental and other social concerns.
It is with this in mind that the Social Investment Organization and the Taskforce on the Churches and Corporate Responsibility compiled this handbook. It is our view that socially responsible shareholdership is not just a responsible ethical policy, but that it is a powerful tool for achieving shareholder value. We believe there is growing evidence that responsible companies are also profitable companies, and active shareholdership is a means to create shareholder return.
It is also our view that institutions should consider active shareholdership for legal reasons. Just as the use of sophisticated hedging techniques can identify and control financial risk, active shareholdership can help institutions manage a variety of social, ethical and environmental risks that present future liabilities to institutional portfolios. Rather than being contrary to the fiduciary duties to members and stakeholders, we believe that responsible shareholdership gives voice and power to the long-neglected non-financial interests of shareholders.
Socially Responsible Shareholdership in Canada has been written primarily for key decision-makers at institutional investment funds; namely, private and public sector investment funds, church funds and religious investors, charitable foundations, endowments and non-governmental organizations, socially and environmentally screened mutual funds and family trusts. The aim is to speak to the concerns and needs of trustees, directors and managers of these funds as they come to grips with varying demands for greater social accountability.
Active shareholdership is defined as the process of using your power as a shareholder to influence corporations on particular issues or actions. It usually includes:
Pension funds, religious organizations, foundations, endowments and public institutions, such as hospitals and universities, are asking their investment managers and advisors for policies and procedures to manage their money in socially responsible ways.
In most cases, social investment means screening -- negative or exclusionary criteria to rule out certain stocks, and positive criteria to actively seek out certain companies representing social and environmental leadership.
However, this is just one approach to social investment. Another approach -- known broadly as shareholder advocacy -- is also gaining ground as a prudent and socially effective way of managing assets. Such active, or socially responsible, shareholdership is a means by which shareholders influence corporate policies and actions on issues ranging from corporate governance to environmental and other social concerns.
It is with this in mind that the Social Investment Organization and the Taskforce on the Churches and Corporate Responsibility compiled this handbook. It is our view that socially responsible shareholdership is not just a responsible ethical policy, but that it is a powerful tool for achieving shareholder value. We believe there is growing evidence that responsible companies are also profitable companies, and active shareholdership is a means to create shareholder return.
It is also our view that institutions should consider active shareholdership for legal reasons. Just as the use of sophisticated hedging techniques can identify and control financial risk, active shareholdership can help institutions manage a variety of social, ethical and environmental risks that present future liabilities to institutional portfolios. Rather than being contrary to the fiduciary duties to members and stakeholders, we believe that responsible shareholdership gives voice and power to the long-neglected non-financial interests of shareholders.
Socially Responsible Shareholdership in Canada has been written primarily for key decision-makers at institutional investment funds; namely, private and public sector investment funds, church funds and religious investors, charitable foundations, endowments and non-governmental organizations, socially and environmentally screened mutual funds and family trusts. The aim is to speak to the concerns and needs of trustees, directors and managers of these funds as they come to grips with varying demands for greater social accountability.
Active shareholdership is defined as the process of using your power as a shareholder to influence corporations on particular issues or actions. It usually includes:
- Proxy Voting. Developing and maintaining proxy voting guidelines helps investors know where they stand regarding proposed shareholder resolutions. Ensuring that proxies are voted according to the guidelines is one of the most important responsibilities of a shareholder.
- Corporate engagement. This is the process of meeting or communicating with corporate management to attempt to persuade management to modify corporate behaviour on the issues or actions of concern. As an investor, you can engage with corporate management through meetings, or communication by telephone, letter or other means.
- Shareholder resolutions. In some cases, you may want to use your rights as a shareholder to persuade other shareholders to pass a resolution mandating that management take certain actions. This is done through the shareholder resolution process, which includes presenting and speaking on issues at company annual general meetings.
- Divestment. If corporate management is adamant that it does not want to heed your requests as a shareholder, you may want to consider selling your shares as a way to show the managers you will not accept the extra burden of risk due to their lack of response. Divestment is also a means to ensure that your portfolio is ethically consistent with the views of your members or other stakeholders who feel strongly about the issue or action.
