The SRI (Socially Responsible Investing) Fund is an investment available to active members of the Western Pension Plans. It was added to Western’s portfolio of investment choices in 2008, and was managed by Mackenzie Financial until May 2012, when Mackenzie served notice that they had terminated the fund that constituted Western’s SRI fund. Aberdeen Asset Management (a company that had provided portfolio advice to Mackenzie for this fund in the past) took over management of the fund. One of the results of the change in management is that the SRI Fund is no longer available to RIF (Retirement Income Fund) members.
The definition of socially responsible investing has evolved over the years, in part due to the increased public interest on issues such as climate change and the inclusion by major Canadian public pension plans of environmental, social and governance (ESG) factors in their investment analysis. Socially responsible investing is broadly defined as the integration of ESG factors in the selection and management of investments.
It has several components:
Aberdeen Asset Management, an international investment management company, is currently responsible for the portfolio management of Western’s SRI Fund. Aberdeen began managing SRI mandates in 1988 and is widely acknowledged as one of the leading specialists in this investment approach.
The investment option available to active pension plan members is a global equity fund. A global equity fund invests in shares of companies located all over the world, including Canada, the U.S., Europe, Asia, Australia and also emerging markets such as China, India, Brazil and Russia. For this product, Aberdeen uses a “bottom-up” value approach. A bottom-up approach involves selecting companies based on their individual strengths first and giving secondary consideration to the industry or country. A value approach involves incorporating several valuation measures when selecting stocks. One valuation metric commonly used is the price/earnings ratio (or P/E ratio). This ratio is calculated by dividing the price of a stock with the earnings per share. The higher the ratio, the more expensive the stock is.
Aberdeen ensures that the companies it invests in pass the twin hurdles of fundamental financial strength and acceptable social behaviour.
Aberdeen’s regional analysts identify companies with quality management and superior earnings potential based on their own research, direct company contacts and valuation expectations from a variety of outside research sources. Companies meeting these criteria are assigned a rating according to growth expectations and quality of management. These ratings make up Aberdeen’s Global Equity Buy List. Stocks remain on the Buy List for as long as is justified by their fundamental performance.
Companies that pass Aberdeen’s financial hurdles are then analyzed for evidence of acceptable social behaviour. This analysis combines positive and negative criteria to identify companies that are ethically, socially and environmentally progressive. Aberdeen’s socially responsible investment process includes the use of positive and negative screens, integrating social and sustainability factors with stock portfolio analysis and shareholder advocacy, mostly through proxy voting and ongoing communication with management. Aberdeen reviews social, ethical and environmental criteria that cover 18 core areas. (Click here for a description of Aberdeen’s investment and ethical screens.)