} Socially responsible finance in Quebec

Transcription

1 f } Socially responsible finance in Quebec 2013 overview CAP Finance, the solidarity and responsible finance network, the Karl Polanyi Institute of Political Economy and Institut de recherche en économie contemporaine (IRÉC)) Research teams The Karl Polanyi Institute of Political Economy: Marguerite Mendell Tassadit Zerdani Institut de recherche en économie contemporaine (IRÉC) : Gilles L. Bourque Johanne Bérard

2 Special thanks to: The 2013 overview of socially responsible finance (SRF) in Quebec presents the results of research undertaken by the Karl Polanyi Institute of Political Economy, Concordia University and the Institut de recherche en économie contemporaine. We would like to thank all those who contributed to this project. For their work pertaining to socially responsible investing, thanks go to Rosalie Vendette, Desjardin s responsible investment advisor and active member of Réseau PRI Québec; Louise Campeau, Chair of Applied Ethics research professional of the Université de Sherbrooke; Pierre Viau, director of Regroupement pour la responsabilité sociale des entreprises (RRSE) and the Hexavest investment firm which provided invaluable technical support when evaluating the total financial assets under management throughout Quebec. Regarding their contribution to the survey of development capital and solidarity finance, special thanks go to Karen Hofman for her contribution to updating the list of respondents; Jacques Fiset of the Association des Centres locaux de développement; Jean-René Laforest, CEO Fonds locaux de solidarité FTQ; Claude Jarret, portfolio manager at Fonds de solidarité FTQ; Jeanne Marcotte, researcher for the Association des CLD, as well as each and every network and fund director, in particular, members of CAP finance. For the proofreading and editing, we thank Édith Forbes, Émilien Gruet and Geneviève Huot of the TIESS. CAP Finance Solidarity finance network 1431 Fullum, Suite 207 Montreal (QC), H2K 0B5 info@capfinance.ca The Karl Polanyi Institute of Political Economy Concordia University 1455 de Maisonneuve Blvd. West Montreal, (QC), H3G 1M8 Polanyi@alcor.concordia.ca Institut de recherche en économie contemporaine (IRÉC) 1030, Beaubien East, suite 103, Montreal, (QC), H2S 1T4 secretariat@irec.net Territoires innovants en économie sociale et solidaire (TIESS) 1431, rue Fullum Montréal (Qc) H2K 0B5 info@tiess.ca } Page 1

3 Introduction For a third time, Quebec organizations have collaborated to produce an overview of the province s socially responsible finance (SRF). The first study, carried out under the auspices of the Alliance de recherche Universités-Communautés sur l économie sociale (ARUC-ÉS) 1, proved challenging and took two and a half years ( ) to complete. The second study was the result of collaboration between CAP finance, the new solidarity and responsible finance network, the Karl Polanyi Institute of Political Economy at Concordia University and the Chair of Applied Ethics of the Université de Sherbrooke. The updated overview of SRF carried out in , was co-directed by Gilles L. Bourque, head of CAP Finance s information committee, Marguerite Mendell, director of the Karl Polanyi Institute of Political Economy and professor at the School of Community and Public Affairs, Concordia University, and Allison Marchildon, associate professor Chair of Applied Ethics of the Université de Sherbrooke. For the 2013 overview, Gilles L. Bourque and Marguerite Mendell have once again joined forces on behalf of three organizations: CAP finance, the Karl Polanyi Institute and the Institut de recherche en économie contemporaine (IRÉC). As in 2006, this overview is divided into two parts: (i) socially responsible investing ("placement" or indirect investment) and (ii) direct investment including development capital and solidarity finance ("investissement responsable"). This document summarizes the results of these two studies. The over-arching term "socially responsible finance", (SRF) used in this overview, captures both these activities. In English, "placement" is translated as investment and so the distinction between "placement" and responsible investing makes no sense. For "placement", we refer to socially responsible investing (SRI) practices of institutions and fund managers; "direct investing" (investissement responsable) includes both development capital and solidarity finance. A note about Socially Responsible Finance (SRF) New vocabulary is a good indicator of an evolving landscape at different moments in time and in different cultural contexts. Today, numerous concepts describe new practices in finance including references to ethical funds or "socially responsible investments (SRI)", and "sustainable investments". The rapidly growing "impact investing" market which refers to investments with social objectives by foundations, pension funds, high net worth individuals (HNWI) and a growing number of intermediaries, pursues the objectives of development capital and solidarity finance in Quebec. Despite these numerous terms, they all share a commitment to ethical, cultural and environmental goals when making investment decisions. 1 Gilles L. Bourque et al. Portrait de la Finance socialement responsable au Québec, ARUC- ÉS, May Gilles L. Bourque et al. Portrait 2010 de la finance responsable au Québec, CAP finance et Chaire d éthique appliquée (UdeS), mai e_portrait_2010_fsr.pdf } Page 2

4 Methodological precisions and global results Studies led by the Karl Polanyi Institute as well as by IRÉC have identified the characteristics of the main components of SRF in Quebec. It is important to note, however, that even though the following statistics are up to date, in order to properly compare these results with those in 2010, it was necessary to make adjustments to the previous figures, since modifications have been made to certain categories relating to socially responsible investment ("placement") practices. The remarkable 41.6% increase in assets of development capital (venture capital creating employment and contributing to regional and local development) and solidarity finance institutions (investors in collective enterprise) since 2010, is largely due to development capital that contributed nearly $17.3 billion or 42% to this growth. Table 1: Synthesis of SRF assets, 2103 Components Categories Assets (million $) Socially responsible investment ( placement ) Responsible investment Institutional investors Asset managers Development capital Solidarity-based finance Overall, we found that Quebec s SRF assets have experienced significant growth. The assets of socially responsible investing institutions amount to $274.5 billion : $214.1 billion for institutional investors (pension funds, insurance companies, foundations and religious communities) and $60.4 billion for asset managers (management companies, mutual funds, etc.). These assets have increased by 69.9% since 2010, significantly reducing the impact of the financial crisis. They represent 33.1% of Quebec s total assets under management. Access to tax benefits (labor funds and Capital régional et coopératif Desjardins <CRCD>) is largely responsible for this increase. Solidarity finance also experienced an impressive 39% growth since Total assets were $1.4 billion in } Page 3

5 Socially responsible investing ("placement") The following section provides results obtained by this third survey of socially responsible investing by institutional investors and Quebec asset managers. Carried out by IRÉC, these results bring the 2010 overview up to date. Highlights Of 159 contacted respondents, 76 replied (47.8%) to our questionnaire. Among these, 44 said that they had adopted responsible investing practices; 16 replied that they had not taken any such measures. Finally, 16 respondents did not reply. The organizations participating in the survey make up a total of $366.8 billion in assets across Quebec. Since we found that the total assets under management amount to $828.5 billion, we can conclude that the survey s respondents represent 44.3% of the global market. With this data, the study reveals that $274.5 billion or 33.1% of Quebec s total assets under management, engage in SRI practices. This engagement is largely due to the adoption of SRI criteria by retirement funds (81.9%) and asset management companies. Retirement fund assets adopting SRI principles represent 78% of the total assets. If we add to this the assets managed according to SRI by asset management firms, the total jumps to 95%. When examining the evolution of Quebec assets applying SRI criteria, previous research (2006 and 2010) indicated a significant decrease in 2010 (-16.8%). The current study however shows that a major increase (+69.9%) has since occurred. Among the 44 respondents engaged in SRI practices, 24 have adopted a formal responsible investing policy to be followed by management. Those applying such criteria stated that they adhere to principles of responsible investing or are members of an organization promoting extra-financial objectives. According to the information gathered, particular importance is given to practices based on environmental, social and governance (ESG) criteria, greatly surpassing exclusionary practices (50%), shareholder engagement (41%), alternative funds (36%), financial inclusion policies (32%) and real estate (23%). } Page 4

6 1. Socially responsible investing assets This section presents the overall findings of the 2013 study by category, tracing the evolution of SRI since the 2006 study undertaken in collaboration with the industry s active members. It is important to keep in mind that the objectives of these studies is an evaluation of global assets subject to management decisions that consider extra-financial objectives as well as an attempt to measure the relative scale and evolution of various criteria to achieve these. These include screening, multiplecriteria analysis (ESG for example) and shareholder advocacy (by exercising their right to vote, through dialogue with enteprises and/or by shareholder resolutions, or by divestment strategies). This 2013 study represents our first attempt to measure the percentage of Quebec s assets under management subject to socially responsible investing criteria which is common practice for responsible finance organizations across the globe. Table 2 presents the results obtained from the survey on the amount of Quebec assets managed with socially responsible investing criteria (SRI Quebec assets), as well as each category and the percentage they represent of Quebec s total assets under management. With $275 billion of Quebec assets (33.1%) being managed responsibly, Quebec is between the percentage across Canada (20%) and Europe (49%). Note: The percentages in the last column are are based on the total assets for each category of investors and the total of all assets under management in Quebec. Diagram 1 summarizes the data collected on SRI managed investments in Quebec in our three studies. Categories Institutional investors Table 2. Quebec assets managed applying SRI criteria SRI Quebec assets (million $) % total Quebec assets Retirement funds % Insurance companies % Foundations Religious communities Not available - Institutional investors SUB TOTALS Fund management companies % Asset managers Mutual funds % Others % Asset managers SUB TOTALS TOTAL % } Page 5

7 We observed a significant decrease in 2010, followed by a major increase in the current study. The decrease in 2010 is largely due to the financial crisis of and the crash of share values for the majority of actors investing in the stock market. In the wake of the Great Recession, the asset management industry was plagued by a wave of mergers. To recap, 2010 recorded sizeable drops in assets (-16.8%), but the increase recorded in 2013 (+69.9%) significantly reduced the impact of the financial crisis. Unfortunately, in the earlier studies, we did not evaluate the percentage of SRI assets relative to total assets under management. This would have allowed us to measure if the 2010 decline in SRI placed assets was proportional or not to the decline in total assets under management in Quebec. Diagram 1. SRI Growth in Quebec 2. SRI : Common practices This third overview has allowed us to measure the evolution of SRI practices in Quebec. Clearly, those involved in this activity are acutely aware of the challenges of globalization in the 21 st century and their impact on risk assessment. At the same time, we also observe a growing institutionalization of practices. Among these is the United Nation s Principles of Responsible Investing (PRI) that has inspired an international movement whose impact is growing rapidly. Though it may be difficult to predict the future of this international initiative, it can already play a vital role in inspiring new investment practices and transforming perceptions about this market. Although SRI practitioners manage sizeable assets, these remain a minority in a financialized market economy that is unsustainable in the long run and will force innovation. Slowly but surely, these actors are introducing new rules to the market which will undoubtedly be better suited to take on the challenges of the 21 st century. Among those we surveyed, 44 stated they were engaged in some responsible investing. Additionally, 24 confirmed the existence of formal responsible investing policies to guide management. All those following such guidelines stated that they also adhere to principles of responsible investing or are members of an organization promoting extra-financial objectives. Screening, one of the more common practices associated with responsible investing, marked the early phase of SRI. To } Page 6

8 this day, screening remains the most widespread practice in Europe, slightly surpassing integration of ESG principles. In Quebec, current research reveals that criteria excluding alcohol, gambling and pornography have now been surpassed in importance by health (tobacco), peace (armaments) and the environment (nuclear). Respondents prioritizing inclusion mostly focus on the respect of human rights, followed by workplace relations, environmental practices, as well as ethics and governance. When asked about practices relating to voting rights, over 80% mentioned enterprise governance. 75% of respondents also spoke of the environment and human rights as important concerns. Finally, one of the survey questions asking respondents to identify the part of their responsibly managed assets applying different criteria, allowed us to classify and rank their relative importance. ESG based risk analysis proved to be the most common criterion applied by Quebec s responsible-investing practitioners. Representing 77% of answers, this approach largely surpasses exclusion (50%), shareholder advocacy (41%), alternative funds (36%), inclusion (32%) and real estate (23%). Diagram 2. SRI criteria applied to asset management } Page 7

9 Responsible investment: Responsible investment.development capital (DC) and solidarity finance (SF) The response rate from the survey was 27%. However, through data collected directly from directors of networks, it increased to 36%. The following section summarizes findings from the third survey of development capital and solidarity finance in Quebec. This 2013 overview completed by the Karl Polanyi Institute, provides an update to the previous 2010 overview. Highlights The survey was carried out between January and March Questionnaires were sent to key individuals in national institutions, the 120 CLDs and CDÉCs, the 85 Fonds locaux de solidarité FTQ (local solidarity funds) and the 16 Fonds régionaux de solidarité FTQ (regional solidarity funds) in order to update information on development capital and solidarity finance. This information was completed with data made available in the annual reports of several organizations (labor funds, state funds, etc.). Table 3. Responsible investment assets Overall, the current study confirms the results of previous research: development capital (DC) and solidarity finance (SF) assets are steadily increasing. Interestingly, unlike SRI assets, Quebec s DC and SF were less affected by the crisis. This is in large part due to the capacity of DC institutions to raise capital, especially the two labor funds and the CRCD. When combined, DC and SF assets amount to nearly $18.7 billion in Over $11.6 billion has been directly invested in enterprises. The following table illustrates this information. Responsible investment components Total assets (M$) Investments (M$) Development capital , ,9 Solidarity finance ,9 Total , ,8 } Page 8

10 1. Development capital The DC component includes venture capital institutions with numerous extra-financial objectives (economic, social, and environmental). These institutions make use of venture capital tools including nonguaranteed financing such as equity, quasiequity, traditional loans and share capital. However, their investment policies that include job creation, local and regional development, environmental protection and employee training, distinguish the application of these tools. The following diagram illustrates the distribution of assets within DC institutions. DC funds offer three categories of venture capital: venture capital for regional development, labor for job creation and for local development. While these objectives can and do often overlap, the following table separates these investments by category. Diagram 3. Development capital Fonds de solidarité (FTQ) Fonds régionaux de solidarité IQ (Fonds de développement économique) IQ (FIER-Régions) IQ (FIER-Partenaires) IQ (Fonds de soutien) Fondaction CSN Capital régional et coopératif Desjardins Société de développement des entreprises culturelles (SODEC) Fonds de développement emploi- Montréal (FDEM) Réseau des CLD et CDÉC 160 Réseau des SADC et CAE Réseau de Fonds locaux de solidarité (FLS) Cycle Capital management } Page 9

11 Table 4. Development capital investments Venture capital categories Investments % of total Venture capital for regional development 3572,4 34,1 Venture capital for job creation 5988,5 57,2 Venture capital for local development 908 8,6 Total 10468,9 100 Assets for DC originate from diverse sources, particularly from collective actors, (the two labor funds, the Mouvement Desjardins and Investissement Québec). 2. Solidarity finance Solidarity finance is made up of those institutions that invest exclusively in cooperatives, NPOs and associations that have socioeconomic objectives, similar to DC funds. Furthermore, SF institutions and local actors work together to achieve their socioeconomic objectives as well as the promotion of the social economy. Total assets of SF institutions are $1.4 billion. The Caisse d économie solidaire Desjardins represents approximately 52% of this total with $737.5 million. Institutions intervening on a national scale, such as the Fiducie du Chantier de l économie sociale, RISQ, Filaction and the Caisse d économie solidaire Desjardins, represent by far the largest proportion of assets directed to the social economy. The following diagram illustrates the assets of SF institutions. Diagram 4. SF assets (by organization) FilAction et son réseau Fiducie RISQ Caisse d'économie solidaire Réseau Québecois du crédit communautaire Fonds FIRA (Fonds d'investissement rural) 296 IQ (capitalisation et autres investissements dans l entreprenariat collectif) Co-investissement coop Fonds d'investissement pour la culture et communication (FICC) Capital Essor Coopération Fonds investissement Montréal 75 5,3 737,5 } Page 10

12 Table 5. Solidarity finance investments Solidarity finance Investments M$ % of total Caisse d économie solidaire 675,1 58,1 Réseau d investissement social du Québec (RISQ) 20 1,7 The Chantier de l économie sociale Trust (Fiducie) 34 2,9 Fonds d investissement Montréal (FIM) 9 0,8 Filaction and its funds (fonds mosaïque, Fonds Afro-entrepreneurs, Fonds tourisme PME; and FEMMESSOR) 32 2,7 Réseau québécois du crédit communautaire (23 members) 11,3 0,9 IQ - IMPLIQ Financing (flexible financing) ,6 IQ (capitalisation and other investments within collective entrepreneurship) ,4 Fonds d'investissement de la culture et des communications (FICC) 55 4,7 Total 1162,9 100 Assets of these institutions generally come from five sources: government (federal and provincial); community participation (municipalities and other organizations); labor funds (Fonds de solidarité FTQ and Fondaction CSN); private capital; and the sale of social shares (ex. Caisse d économie solidaire Desjardins). As this capital often has multiple providers, we can refer to these as hybrid funds. Total investment by SF institutions is approximately $1.2 billion. Because it was very difficult to distinguish the amount invested by DC in collective enterprises, this result underestimates the total value of SF. The Caisse d économie solidaire has invested over $675.1 million, representing 58.1% of total SF investments. SF institutions offer a wide array of financial products designed to meet the needs of collective enterprises. They provide traditional loans as well as capitalization products including patient capital; preferred shares in certain cases; equity and quasi-equity; guarantees; participating loans; social shares; bridge financing and revolving credit; low-interest or soft loans and guarantee bonds. Conclusion The third study on socially responsible finance (SRF) demonstrates its growing importance in Quebec. Despite the financial crisis, SRF actors and institutions were able to meet the needs of their clients increasingly distrustful of financial speculation and concerned with the environmental, social and political challenges of the 21 st century. } Page 11

13 } Page 12 } Socially responsible finance in Quebec 2013 overview