Ethical Investment Seminar

1. Sue Watson and Matthew MacLeod 15 February, 2009 Engineers Without Borders Ottawa Professional Chapter Ethical Investment Seminar

2. What is value? • Objective – e.g. asset-based? • Speculative – e.g. Dutch tulip craze? Hockey cards?

3. Case Studies Begin...

4. Fundamentals of the Stock Market • How are you really affecting a company by investing or not? • What happens to companies that can't (or “shouldn't”) grow any more? • Borrowing power? Power to buy other companies? • Common stock vs. preferred stock • Can vote with common stock, but better dividends with preferred stock, other special rights

5. Stock Valuation • Remember – what is value, anyway? • Efficient Market Hypothesis • Only changes in fundamental factors, such as profits, losses, acquisitions or dividends, ought to affect share prices • However, this is visibly not the case • Tech crash • Steve Jobs

6. Stock Valuation • So what is affecting the price? • risk valuation (e.g. 'risky bets' go down)‏ • psychological factors (tendency to see patterns, bandwagon effect, certain price levels, etc.)‏ • actually unrelated (but apparently related) negative economic news • Note that “expected” growth is already “priced in” to the stock • Financial guru Warren Buffet recommends a strategy of waiting for stocks to become undervalued due to external factors

7. Case Study - The TSX • Toronto Stock Exchange • The centre of the Canadian financial universe • BUT, also the centre of the mining universe • Almost 60% of the world's mining companies listed • Rough break-down as of December 31, 2008 • ~29% in financials (banks) • ~27% in energy • ~17.5% in materials (mining) • Any Canadian ethical fund needs to confront this reality

8. The Best in Sector Approach • “Reward the leaders, punish the laggards” • Basic argument – even (or perhaps especially) in the 'worst' industries, it is helpful to encourage companies to become 'less bad' • Vote with your dollars • Approach taken by most SRIs... otherwise what else would they invest in on the TSX? • Sends a market signal to companies that they should improve • And... you're profiting in the meantime

9. Case Study – Jantzi Social Index • Perhaps most well-known Canadian 'Ethical' fund/SRI • But does this look like you? • Top 10 Holdings :

10. Engage.. or Avoid? • Is it better to be an 'activist investor' in 'negative' companies, or avoid them? • If you don't vote, you can't complain... but is that really analogous? • If the market is truly efficient, does avoiding make a difference? • Does engaging through an ethical fund multiply your power, or dilute it? • Will you ever have enough voting power?

11. Counter-Point: What if you live outside the centre of the universe? • Statscan reports <2% of Nova Scotian's mutual funds are in Nova Scotia businesses • easier to ignore externalities • has significant negative impact on local community • NS Government solution – Community Economic Development Investment Funds • “Just Us!” Fair Trade coffee co-op funded in this manner • Several different models – pools vs. single business

12. Case Study – Shared World Term Deposit • Basically a Micro-loan GIC • RSP and TFSA eligbile • Citizens Bank • 'Virtual' branchless bank • Also have various other programs (Community Development Fund, Shared Interest Credit Card) • CSR policy, carbon neutral • ... but 2% return (was more like 4% or 5%)

13. Case-study – Microplace • Micro-credit marketplace owned by eBay • Unlike Kiva, actually offers a return • Only one organization offers >3% returns • Two-year return in this case • Searchable by poverty level, geographic area, repayment time, focus areas (women, green..)

14. Case Study – Property • Hard to lose money in the long-term? • credit bubble notwithstanding? • Speculative versus long-term focus • Investing in energy efficiency? • if your electricity and heating bills are zero, are you going to need as much retirement money? • What about durable goods? • Will that fancy espresso maker pay off in the end?

15. Case Study – What about family? • Investing for your future implies that you are the one funding your retirement • But in how many cultures and time periods has this really been the expectation? • Can consider your community as a broader extension of family

16. Community Investment • Can mean different things • Philanthropy on (for most of us!) a small scale • e.g. get your name on a bench, or a University brick • Ottawa Community Loan Fund • local 'mini'-credit charitable organization • Investing preferentially in local businesses • Encourages “enlightened self interest” • Volunteerism • how much money have you saved EWB?

17. The “Local” Tax • Similarly, one can view patronizing local small businesses as investment in one's community • Regularly paying slightly higher prices at your local store means it'll be there when you need it • Keeps money circulating in your community, rather than company headquarters • More personal relationships develop sense of community

18. Case Study – Partnership/Ownership • High risk, but... • Direct impact on your community • Directly share the burden of the risk • Small is beautiful? • La Siembra (local sellers of Cocoa Camino, etc.) offer RRSPable shares • Must hold for 5 years • Dividends targeted to 5% (2.5% for 2007/08, met the previous two years)

19. Other Types of Co-operatives • Credit Unions/Caisses Populaire • Often pay more interest/charge less • 1/3rd of Canadians are members • Housing co-operative • Tenants also own the building(s) of a co-operative • Various rules on how one may buy-in/sell-out • Consumers' co-operative • Membership elect a board of directors • MEC has 9, also a yearly AGM in Vancouver • Also Retailers', Workers', Agricultural co-ops

20. Case Study - Commodities/Futures • Futures have a bad rep regarding oil speculators, but... • Really originated to help farms regulate their income • closely linked to how Fair Trade works • and basically what the food box still is • Carbon credit markets are also structured in similar ways

21. Case Study – Day Trading • Is essentially the limiting case of trading based on 'technical analysis' • Techniques can involve trend-following, contrarian investing, or range trading • What effect does this have on the market as a whole? • A day trader generally directly selects their products, but may not know anything about what they are/what they do

22. Investment vs. Aid • So it's come to this... the classic battle royale • Is “aid” an investment? Does it pay-off in the long term?