Summary
In order to ensure the stability of our national and indeed global economies, the financial market crash of 2008/2009 points to the critical need for greater oversight of today’s financial markets. Increasingly large institutional investors are being called upon to provide this type of active engagement and ownership in our capital markets. Many institutional investors are using their influence to engage and in some cases aggressively challenge the management of corporations in order to improve the environmental, social and governance (ESG) standards of the firms in which they invest. Such activity forms the core of institutional investors’ responsible investing strategies and as a result investors hope to ensure long-term shareholder value for future beneficiaries. Raised corporate ESG standards have positive impacts for Canadian communities and indeed communities around the world. In light of recent financial and environmental crises, such long-term investment policies are essential to ensuring the health and growth of our economies going forward.
A subset of responsible investing is impact investing. Here institutional investors look for ways to direct their investment in order to generate both a market rate of return and positive impacts on societal areas of broad concern. Impact investing is critically important for Canadian communities, particularly as they struggle to recover from the current financial crisis that has severely limited access to capital so vital for their growth. Impact investing seeks financial returns in combination with ancillary benefits such as brownfield redevelopment, urban revitalization, clean technology, sustainable energy, and affordable housing. Extending our understanding of the supply of capital to these community-based investments is critical both to engage institutional investors in this arena and in the development of the public policy frameworks required to stimulate such investment.
The objective of the Responsible Investing Initiative (RII) CURA is to have more Canadian institutional investors take up responsible investing with its attendant positive impacts for Canadian communities. Such a shift to responsible investing requires deep changes at the institutional and policy level in order to move beyond advocating change to actual change in institutional behavior. This requires permanent capacity be built within our institutions with time, resources and the necessary research on which to base these important investment decisions. The RII CURA provides the necessary research and dissemination that such a change requires.
Collectively, our CURA partners represent thirty three national and international organizations and networks of practitioners, academics and stakeholders on responsible investing. Our partners include practitioners from the sector, university research centers, and key stakeholders from our target audience. Housed at the Carleton Centre for Community Innovation, the initiative will provide institutional investors with concrete, web-based access to new research and tools by which to implement their policies and programs. It will offer instructive case studies from which these institutions can learn. Through the Academic Network of the United Nations Principles for Responsible Investment it will bring international expertise in the topic to Canadian institutional investors and other stakeholders. It will provide opportunities for Canadian students and educational course materials to facilitate other institutions to take up this subject. Through an international conference held in Ottawa, it will explore the public policy implications of institutional investors’ responsible investment policies and practices.
Research Program
The objective of the CURA is to have more Canadian institutional investors take up responsible investing with its attendant positive impacts for Canadian communities. To achieve this we ask three key questions:
- What is the business case (or rationale) that underpins the need to take environmental, social, and governance factors into consideration?
- What impact do institutional investors’ governance structures have on the implementation of responsible investing programs?
- What are the legal and regulatory environments that promote responsible investing?
This research will be undertaken through an engaged partnership between academics and the responsible investing community and fully integrate students in the research. The three research questions were developed in the LOI stage of our CURA by our Partners and Steering Committee. The questions are interconnected, and provide knowledge needed by institutional investors to effectively implement RI strategies, by Canadian policy makers to enable RI programs, and by Canadian communities to pursue RI objectives with companies and investors.
The research program will be conducted in three stages. Stage 1 (years 1-3) directly investigates each of the three questions posed above and will be conducted over the first three years of the CURA. Stage 2 (years 2 – 5) builds on the RI business case developed in question 1 with two responsible investing case studies that have direct impact on Canadian communities. Stage 3 (ongoing through year 5 and beyond) synthesizes knowledge and builds knowledge mobilization. See Organization Chart in Partners and Alliances.
Stage 1 (Years 1-3)
Research Question 1: What is the business case (or rationale) that underpins the need to take environmental, social, and governance factors into consideration?
Research Leader: Tessa Hebb, (Carleton University)
Research question 1 tackles the important issue of why institutional investors should engage in responsible investing practices. As institutional investors become aware of RI, there remain many unanswered questions as to the impact RI practices have on companies and by extension the communities in which they operate. This research explores the business case for responsible investing across a number of asset classes in the Canadian economy.
Research issues in question 1 include:
- the measurable impact on companies’ share value when ESG standards are raised,
- the role of responsible investing in raising ESG standards,
- converting “latent” demand for responsible investment into “real” demand, and
- the investment risk for Canadian companies operating in conflict areas.
Three datasets will be developed for analysis. The first will capture ESG ratings and company specific data on Canadian companies. We will look at a variety of asset classes. The second will be derived from previously unpublished data from Panel Desjardins and other sources. The third dataset examines documented cases of conflict trade from 1990-2010, distinguishing cases that prompted investor engagement and from those that did not. Through-out the research, we will combine analysis of an empirical datasets with interviews using semi-structured, and open- ended questions, as well as case studies (Yin 2009).
Research Question 2: What impact do institutional investors’ governance structures have on the implementation of responsible investing programs?
Research Leader: Gordon Clark (Oxford University)
Research question 2 addresses the governance practices of institutional investors that are key to their ability to institute responsible investing programs and for making those programs meaningful in term of raising the ESG standards of companies (Clark and Urwin 2008, Woods and Urwin 2010). In order to encourage institutional investors broadly to take up responsible investing we need to understand the constraints on ESG according to the type of institutional investor.
Research issues in question 2 include:
- understanding how and why temporal differences occur in a variety of funds,
- the nature and choice of ESG investment instruments,
- clearer understanding of ESG figures in portfolio investment management as the true risk budget of institutional investors, and
- whether PRI signatories improve their RI practices as a result of signing the PRI.
As research leader, Gordon Clark brings a world-class reputation and a research program on fund governance at Oxford University. He will lead this work with partner Mercer Ltd. to more fully understand the implication of governance structures on responsible investing and will draw on personal contacts around the world and his reputation in the field to bring both empirical data and expert interviews to this investigation. He will supervise a Canadian doctoral candidate for 3 to 4 years to work with him on these issues at Oxford funded jointly by the CURA and Carleton University. Utilizing a private dataset of UN PRI signatories’ annual reports over the past five years, the hypothesis that the wide-spread adoption of principles leads to more interventionist responsible investment practices will be investigated.
Research Question 3: What are the legal and regulatory environments that promote responsible investing?
Research Leader Professor Benjamin J. Richardson (UBC)
Research question 3 investigates how the legal system and policy frameworks affect financial institutions’ willingness and capacity to invest responsibly. It has a public policy component and looks at potential reforms in a Canadian context. The focus is not only on official state-based laws, but also the governance regimes arising beyond the state, including the impact in Canada of codes of conduct such as the UN Principles for Responsible Investment (UNPRI). While RI evolved as a voluntary movement, it is increasingly recognized that legal rules relating to fiduciary duties, corporate governance and reporting, and other issues can hinder or facilitate action (Richardson, 2008, Thornton, 2008).
Research question 3 includes:
- the existing legal norms in Canada relating to fiduciary duties and the internal governance of investment institutions, that can enable RI,
- the legal weight that fiduciaries attach to beneficiaries’ views regarding RI,
- the institutional differences among financial organizations which may give some organizations a legal “advantage” in practising RI, and
- the legal and policy experience of other countries that have been particularly effective in promoting RI.
This research will be undertaken by several means. Empirical research will investigate how Canadian institutional investors interpret fiduciary duties and other legal norms in relation to RI, through a combination of questionnaires, focused interviews and case studies. Second, the affect of Canadian investors’ participation in non-state standards for RI, such as the UNPRI and Carbon Disclosure Project, will be evaluated, particularly with regard to how they perceive the relationship between non-state and official laws. Thirdly, an inventory of practices and legal/policy initiatives in other comparable jurisdictions such as Australia and Britain will be collated and analyzed to identify and analyze precedents that might be beneficial in a Canadian context (eg, Gay & Klaassen, 2005; Donald & Taylor, 2008; Clark & Knight, 2009).
Stage 2 (Years 2-5)
Case Study: RI and the Extractive Sector
Case study Leader: Wes Cragg (York University) with support from Frances Abele (Carleton University), Partners: Naskapi First Nation, Qikiqtani Inuit Association, Canadian Business Ethics Research Network.
With Canada’s economy depending heavily on extractive industries, many questions have been raised as to the impact RI can have on companies and communities in this sector. These questions are critically important particularly in Northern Canada where the extractive industry has been criticized for negative social, economic, environmental and human rights impacts on the wellbeing of local communities and First Nations. Additionally, given that the Toronto Stock Exchange is one of the world’s leading sources of equity financing for the extractive sector, such questions are equally important for communities around the world. The dominant issue facing the responsible investor is knowing whether steps are being taken by mining companies that are likely to result in significantly improved social, environmental and economic performance as seen from an ethical perspective. Currently, there are few indicators that can provide reliable ways of measuring performance in this regard for this industry. Given the role the extractive sector plays in the Canadian economy, how should Responsible Investors approach community development in the Canadian North? What principles should guide private and public investment? What standards should responsible investors seek to meet? Does the emergence of Impact/Benefit Agreements (IBA’s) provide a way forward in this regard? What are the public policy implications of RI in the extractive sector?
We will examine these questions through a case study (Yin, 2009) of two different regions in Canada. The first is with the Naskapi First Nation in Northern Quebec and the second with the Qikiqtani Inuit Association in the Baffin region of Nunavut. The work with the Naskapi builds on a study by CBERN, supported by a SSHRC dissemination grant. Methodology includes an empirical analysis of the history of the development of Impact/Benefit Agreements and their evolving use and structure with a view to identifying indicators that could then be used by the investment community concerned with ensuring that their investments were socially responsible. Additionally, the creation of a “working model” inventory will be developed with a full array of measures relevant to responsible investment in the sector. A literature review will identify relevant measures in use in other jurisdictions. The review will be followed with semi-structured interviews with our partners. Draft policy papers for each community will be developed and circulated to the communities, with input into final policy papers (See Communication of Results).
Case Study: Impact Investing and Canadian Communities
Lead Researcher: Margie Mendell (Concordia University); with Ted Jackson (Carleton University); Francois Brouard (Sprott Business School, Carleton University); Judith Madill (Telfer Business School, University of Ottawa); Karim Harji (socialfinance.ca); Nancy Neamtan (Chantier); Mook and Quarter (Social Economy Centre/OISE); and Partners Causeway Social Finance; Centre for Social Innovation; OCLF; Social Finance.ca; Enterprising Non Profits; Community Foundation of Ottawa; and Causeway Work Centre.
While the environmental and governance factors in responsible investing are often clear and quantifiable, the business case for investing with regard to social factors is much harder to come by. Impact investing includes investing in a diversity of sectors that meet social and environmental objectives while yielding financial returns. Sectors such as housing, green technology, and eco-tourism are frequently cited examples. But the reach on impact investing is much greater and includes community based businesses and a diversity of so-called social enterprises (Mendell, Harji and Hebb 2010). Engaging large institutional investors in this arena will require efficient secondary markets and robust metrics that enable both the financial and the extra-financial impacts of such investment to be accounted for. This case study asks what is the trend toward impact investing by institutional investors in Canada? What measures are needed to develop a coherent and structured market including a secondary market that will attract institutional investors? What are the necessary metrics and forms of evaluation needed to develop this market?
Mapping the sector is an important first step that will not only provide the much needed information on this activity but will permit the researchers to identify the key actors engaged in impact investing, the sectors of activity benefitting from this investment and the blended outcomes of this activity in Canadian communities. For this mapping to provide useful information, measurement and evaluation criteria will have to be developed. This is work that is currently being undertaken by researchers internationally, but little is currently available in Canada. A mix of methods will be applied in conducting evaluations of Canadian impact investing. Existing datasets on impact investing among the partners will be collected, aggregated and analyzed to provide a mapping of the sector. Logic models and logic chains depicting the proponents’ theories of change will be developed and tested for particular impact investment instruments and portfolios (see Goedeke and Pomares, 2009; Jackson and Tarsilla, 2010). Tools for assessing blended value will also be deployed, including social return on investment (Emerson, Roberts Enterprise Foundation, New Economics Foundation) and the expanded value added statement (Mook, Quarter and Richmond, 2007). Participatory techniques for the engagement of both demand-side and supply-side stakeholders in the evaluation process will also be mobilized for this research. As in the case study on the extractive sector, a draft policy paper on Impact Investing will be circulated to all the Partners for consultation with a final policy paper developed (See Communication of Results).
Stage 3: (Ongoing, Year 5 and beyond) Knowledge Mobilization (KMb)
This CURA initiative will provide the wider public and investment community access to world-class research on responsible investing. As a result we will build and strengthen capacity both within and amongst the CURA networks. This CURA extends our KMb work on RI developed through a SSHRC Knowledge Impact in Society grant. This broad dissemination of knowledge includes hosting seminars and conferences for academics and practitioners, use of partner networks, and most critically use of the Internet with on-line tools and instruments to provide information on responsible investing.
We will fully utilize our already existing web site as a primary KMb tool. We will utilize new forms of social media including wikis, blogs, and twitter to create opportunities for on-line collaboration. We will build on our partners’ extensive networks in our KMb practice. We will collaborate with CBERN, the Network for Business Sustainability (NBS) and UN PRI to fully maximize our web capabilities and networks. We will reinforce these KMb channels with direct engagement with our community of interest through national symposiums, an international RI conferences and on-going webinars.
We will access our international network to ensure dissemination of top Canadian research internationally and vice versa. We will seek scholarly and other publication opportunities including articles and at least one edited volume. We will produce policy documents from our research. The CURA will provide opportunities for students and new academics to strengthen their knowledge mobilization practice. In addition to research, we will also develop course curricula disseminating new knowledge on these topics both in Canada and internationally. See Communication of Results for a detailed description.
Description of Team
The RII CURA will bring together twenty-three top academics and community partners from across Canada together with significant international representation in order to advance the field of responsible and impact investing for Canadian communities. Co-applicants and collaborators are drawn from academic departments and university research centres that include both Oxford and Harvard Universities, as well as leading organizations in the responsible investing field. The team brings considerable experience from investment organizations, business organizations, non-profit and voluntary sector organizations, as well as impact investing networks. Each member will directly participate in knowledge co-creation and dissemination as part of the CURA. Ten members of the team (five academics and five community partner representatives) will serve on the RII Steering Committee and are co-applicants of the CURA (see Partnerships and Alliances (for details on structure and membership).
Dr. Tessa Hebb will lead the team. She brings an established international reputation for research in responsible investing. She has advised some of the largest pension funds in the world including the Canada Pension Plan Investment Board and the California Public Employees Retirement System, as well as industry and government. From 2004 to 2008, Hebb led a three-year joint research project of Harvard Law School and the Oxford University Centre for the Environment, funded by the Ford and Rockefeller Foundations, on pension fund investment in urban revitalization. Tessa Hebb is Director of the Carleton Centre for Community Innovation, Carleton University and has coordinated the Responsible Investing Initiative from 2008 to present (SSHRC/KIS grant 2008-2011, PI Edward T. Jackson).
Five research leaders will co-ordinate research activities, working directly with alliance partners and students. They each bring different institutions, geographic regions, and academic disciplines to the alliance. Each will serve on the RII Steering Committee and play a key role in on-going knowledge mobilization. Team leaders are: Dr. Tessa Hebb (above) Professor Gordon Clark, Oxford University. Professor Clark’s is an internationally renowned expert in the governance, organization and investment management of Anglo-American institutional investors; Professor Ben Richardson, University of British Columbia, an expert in environmental law, Aboriginal law and the legal underpinnings of responsible investing; Professor Wes Cragg, York University, who is the Principle Investigator and Project Director for the SSHRC funded Canadian Business Ethics Research Network with a focus on business ethics and the extractive sector; and Professor Marguerite Mendell, an economist at the Concordia School of Community & Public Affairs and Director, Karl Polanyi Institute of Political Economy, with expertise in social enterprise development and access to capital in this sector. Eighteen co-applicants and collaborators bring considerable depth to the alliance. Key leaders include: Responsible investing organizations: Peter Chapman (Shareholder Association for Research and Education); Eugene Ellmen (Social Investment Organization); James Gifford (UN PRI); Responsible investing research centres: Neil Eccles (Centre Corp. Citizen, University of South Africa); James Hawley (Elfenworks, Saint Mary’s College); Laurie Mook, Jack Quarter (OISE CSE); Lisa Hagerman, David Wood (IRI, Hauser Center); Impact investing organizations: Francois Brouard (CCSE, Sprott Business School); Tim Draimin (Causeway Social Finance); Karim Harji (Socialfinance.ca); Nancy Neamtan (Chantier de l’economie sociale); Responsible investors and advisors: Betsy Martin University partners: Frances Abele, Ted Jackson, Susan Phillips, (Carleton University); Judith Madill (Telfer Business School, U of O). See Organizational Chart in Partnerships and Alliances for more detail.
Collectively, our CURA partners represent thirty three national and international organizations and networks of community partners, academics and stakeholders on responsible investing. Our partners include practitioners from the sector, university research centres, and key stakeholders from our target audience. Eighteen of our partners are community-based organizations while the other twelve are university-based research centers. Each of these organizations has an extensive network of its own that the alliance will utilize in knowledge co-creation and dissemination. In addition, these partners will serve as a sounding board to test the validity and usefulness of the research and RI tools we will be developing. Working together, the CURA will provide a platform for national and international collaboration by researchers, academics and practitioners to examine responsible investing. The CURA also provides a mentoring program for students and new scholars that will actively involve them in research in this arena and engage them in national and international networking and collaboration. Such a platform requires a broad collaboration achieved through a CURA for both knowledge creation and distribution.
The co-creation of knowledge is often referred to as community-based research and is defined as community situated, collaborative, and action-oriented (as defined by Centre for Community Based Research 2010). This approach, also known as community-engaged scholarship “connects the resources of the university with social issues, ultimately benefiting both the common good and the academic purposes of the academy. In addition, engaged scholarship should provide dynamic learning opportunities for students, allowing them to integrate their intellectual, civic, and professional development (UCLA- Centre for Community Partnerships 2010).” Such community-engaged scholarship recognizes scholarship and expertise (Stanton 2007).
As part of our commitment to community engaged scholarship we have solicited input from all the CURA partners, co-applicants, collaborators, and Steering Committee for the proposed research agenda. During the LOI stage, Partners were asked to provide input for the research program through a Call for Research Needs and Direction (Spring 2010). The RII Steering Committee, including its new members, met in an all day session to review the partner suggestions and determine the strategic research plan for the CURA (June 2010). The Steering Committee reviewed all proposals and brought forward the CURA Research Program that incorporates many of the research needs identified by our Alliance. The research program also reflects the research needs established by our partners in the SSHRC KIS project.
Canadian partners (26) include: the Alterna Credit Union, Batirente, Canadian Business Ethics Research Network (CBERN), Caisse de Depot, Chantier de l’economie sociale, Causeway Work Center, Community Foundations of Canada, Community Foundations of Ottawa, Desjardins, Enterprising Non-Profits, MaRS Impact Investing Centre; Jantzi-sustainalytics, Mercers Ltd., Naskapi First Nation, Network for Business Sustainability, Ottawa Community Loan Fund, Polanyi Institute, Qikiqtani Inuit Association, Shareholder Association for Research and Education (SHARE), SocialFiannce.ca, Social Economy Centre (OISE), the Social Investment Organization, Sprott Centre for Social Entrepreneurship, Telfer Business School (Uof O), UBC Law School, and Carleton University.
The CURA also draws on international networks (7). The UN Principles for Responsible Investment, the largest global body on responsible investing with signatories representing over $20 trillion of assets under management, is a key partner in the CURA. Director, Tessa Hebb is the co-chair of the PRI Academic Network, a global body of researchers that supports the work of the UN PRI. The CURA also brings together a number of international research centers on responsible investing (each with their own national and international networks) that include the European Centre for Corporate Engagement, Maastricht University; the Initiative for Responsible Investment, Hauser Center, Harvard University; St. Andrews University; the Centre for Corporate Citizenship, University of South Africa; the Oxford University Centre for the Environment; and the Elfenworks Center for the Study of Fiduciary Capitalism, School of Economics and Business, Saint Mary’s College of California. They will provide access to leading-edge international research through the CURA’s international symposiums. They will participate in dissemination strategies for the research, including sharing presentation material and publishing articles. The CURA will provide a platform for Canadian researchers, practitioners and students in a global network on responsible investing.
Governance
Each of the partners will play a key role in both responsible investing knowledge creation and mobilization. The thirty three partners have agreed to directly participate in the research agenda (see Org Chart page 14). Five partners will act as research leaders, and each research question and case study will have approximately four to five university and community partners. Partners will be active participants in the research providing data, case studies, and opportunities for community based research. Partners will also be directly involved in testing tools and instruments, evaluating research outcomes and disseminating results, as well as engaging in the annual symposiums.
The CURA will be governed through a Steering Committee of ten members, five of whom are the academic researchers who will lead each of the research questions and case studies. The other five are practitioner partners in the CURA (see Org Chart). This builds on the SSHRC KIS Steering Committee of the past three years, adding four new members. Committee members are co-applicants of the CURA. A student representative will also be represented on the steering committee. It will oversee the strategic direction of the project over the next five years and will be responsible for setting the overall research and strategic plan for the project. It will have input on the yearly work plan. The chair of the committee will be appointed at the first meeting from the steering committee members and will be drawn from the community partners. The Steering Committee will also appoint an Ombudsman for the CURA should any points of conflict arise over the five years. The Ombudsman will be available to all CURA members and will act as mediator should any disputes should they arise. The Ombudsman will be drawn from the community partners.
The Steering Committee will also act as a sounding board to test research and knowledge mobilization objectives and plans. The Steering Committee will assess the progress of the initiative measured against its goals and objectives and when necessary, adjust the annual work plan to achieve the desired objectives of the project. The Steering Committee will meet four times a year, three by telephone conference call and one in-person meeting held at the time of the annual symposium. There will be a formal agenda and minutes kept for these meetings.
The annual symposiums of the CURA will bring together researcher, practitioners and key stakeholders to review the on-going research generated by the CURA. An annual meeting of all CURA members will be held in conjunction with the symposiums. There will be a formal agenda and minutes. The annual symposium has been built into our proposed budget (see Budget Justification). Partner organizations that do not have a formal role with the Steering Committee will be asked to actively participate in knowledge co-creation and dissemination through their networks, to test tools and instruments with their networks, and participate in workshops, webinars, symposiums, and international conferences.
Accountability
The CURA will have a strong accountability component. Research leaders and researchers will provide a detailed work plan before funds are released including ethics approval, details of student hiring, detailed role of partners, research questions and methods, activities, budget allocations, expected outputs and knowledge mobilization plan will be required before release of funds. Annual reports providing information on progress in all areas indicated above will be required before further funds are released.