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How Ethical are Canada’s Ethical Funds?

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Issue: 77 Section: Business Geography: Canada

March 8, 2011

How Ethical are Canada’s Ethical Funds?

“Conscientious” investments and the tar sands connection

by Larry Powell

Ethical Funds, and investing ethically in general, sounds good on paper. But how good is it in practice? Photo: Larry Powell

ROBLIN, MANITOBA—As controversy continues to mount over the environmental impact of the tar sands in northeastern Alberta, so too does the dilemma facing people who have money invested in Ethical Funds.

Ethical Funds (EF), a division of Vancouver-based NEI Investments, is the largest ethical investment mutual fund in Canada and was formed more than 20 years ago. It calls itself a “pioneer and visionary at the forefront of responsible investing." According to their website, Ethical Funds believes that companies with strong financial performance and good environmental, social and governance practices can best mitigate financial risk over the long term. One of EF’s core values, it declares, is that “disadvantaged communities should not bear the brunt of adverse environmental impacts.”

But even though all five of Canada’s major banks lend money to tar sands operators, all five are included in the portfolios of various ethical investment funds in this country. Even Suncor Energy, a major corporation which actually extracts bitumen from the sands, is listed in Ethical Funds. Suncor produces some 329,000 barrels or oil per day from tar sands operations.

Suncor, along with Scotiabank and the Royal Bank of Canada (RBC) are ranked among EF’s top ten holdings.

Last spring, the US-based environmental group Rainforest Action Network (RAN), found that tar sands investment by Canadian banks totaled almost $50 billion.

In a letter to RAN, RBC confirmed it was “a financier of oil sands activity, although, at almost $17 billion not currently the largest.”

There is no doubt that the impacts of tar sands extraction are enormous.

People living downstream of the tar sands, in the community of Fort Chipewyan, have been reporting elevated rates of cancer and other illnesses and blaming it on pollution from the tar sands. Details of their ailments have been widely documented, including in a recent special production of CBC's The Nature of Things.

Dr David Schindler, an internationally recognized water expert at the University of Alberta in Edmonton, reports that tar sands development has been contaminating the Athabasca River watershed, to a greater degree than earlier thought.

He warns that the tar sands extraction is elevating levels of poisons in the Athabasca River and its tributaries to the point where they are “likely toxic to fish embryos.”

Alberta-based Pembina Institute says that among the provinces, Alberta was responsible for about 52 per cent of the increase in all greenhouse gas emissions in Canada between 1990 and 2008. Pembina predicts that given the projected growth of the tar sands, their emissions will nearly triple by 2020.

In addition, millions of hectares of boreal forest are being bulldozed to make way for more tar sands extraction. According to data compiled by Greenpeace, forests fallen to make way for the tar sands could eventually amount to an area twice the size of New Brunswick.

So how is this all sitting with those who have invested in Ethical Funds, or are interested in ethical investment in general?

Lindy Clubb of Winnipeg has thought about investing in “ethicals.” But she has too many concerns. “There are poor standards, monitoring and compliance performances in the resource and development sectors so nothing is without risk," she said. "Consumers should be aware of unethical investments and use their money to influence banks and government to have and follow higher standards that protect air, water, soil, wildlife and habitat.”

The Social Investment Organization (SIO) of Canada was set up to promote the practice of socially responsible investment in Canada, and represents financial institutions as well as individual investors. Its executive director, Eugene Ellmen, is more forgiving of the situation than some.

He says those who want no part of the tar sands can ask for “oil sands-free” portfolios. Others willing to invest in that project can still do so while pressing the companies to do better, he added.

Ian Hanington of Vancouver says he owns some ethical funds. He reluctantly accepted an explanation given him by a company representative some time ago: that it would be impossible for a Canadian fund to offer any returns to its investors without having some tar sands investment. “It’s probably sad but true. Maybe Canada really has become ‘a petro state with a petro dollar!’” he said.

Others have decided to divest. “I used to own Ethical Funds—no more! I've lost faith in this outfit,” said Elaine Hughes of Archerwill, Saskatchewan.

Environmental Services Group, is another department within NEI Investments. According to its website, ESG Services provides research and evaluations of companies for managers of "socially responsible investments," including Ethical Funds. But the name Ethical Funds itself might be a bit of a misnomer. In the words of NEI's Vice President for ESG Services Robert Walker, “Note that we do not describe the companies in our funds as ‘ethical.’ This is not our claim.”

Walker says his industry is constantly “pressuring” the companies they invest in to tackle such things as climate change, by preparing and publishing report cards on their performances. He believes companies like RBC are already making progress in this area.

In his defense, Walker might point to a recent policy announcement by RBC. On its website, the bank states, “The new policy is intended to ensure that we gather the appropriate information on relevant environmental and social aspects of our clients' business to evaluate potential impacts on a client's financial position, and to understand how they are preventing or mitigating their impact on environmentally sensitive areas,” explains RBC.

Even the Rainforest Action Network is hailing this as a positive indication that, at least RBC is taking “a step away” from its tar sands involvement. Some were more hesitant in their praise, though. The Carrier Sekani Tribal Council in northern BC, whose population resides along the proposed route for a major oil sands pipeline, said that RBC must follow their policies with action if they don't want their "words to ring hollow."

It’s impossible to know how many conscientious investors might even be aware of the Ethical Funds-oil sands connection, and if they would take action if they had more information.

But the Oil Sands Program Director for The Pembina Institute, Jennifer Grant, says there are choices.

“Some investors may choose to exclude the environmental and economic risks associated with oil sands development from their portfolios. Other investors may use their holdings with oil sands companies to force increased disclosure on impacts and drive improved performance," said Grant. "Both approaches are valuable to address the unresolved impacts of oil sands development."

Larry Powell is an online journalist specializing in the environment. He publishes the blog PathsLessTravelled.com

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The Dominion is a monthly paper published by an incipient network of independent journalists in Canada. It aims to provide accurate, critical coverage that is accountable to its readers and the subjects it tackles. Taking its name from Canada's official status as both a colony and a colonial force, the Dominion examines politics, culture and daily life with a view to understanding the exercise of power.

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