The four Canadian ETFs that focus exclusively on gender all launched within the span of a year, with Evolve Fund’s Evolve North American Gender Diversity Index ETF kicking things off in mid-2017. And soon after, Mackenzie Investments, RBC, and BMO Global Asset Management all launched gender-focused ETFs of their own, giving everyday investors access to stocks with more women in the leadership than most. RBC’s was the only fund to exclusively track Canadian companies.

As it stands, just 17.9% of women occupy board seats around the globe, as of late 2018. MSCI Inc., the global provider of equity, fixed income and hedge fund stock market indexes, predicts that it will take until 2029 to reach a worldwide average of 30% women on boards among MSCI All Country World Index (ACWI) companies. In Canada, the global non-profit Catalyst is striving for a much earlier date, asking all corporations to reach that goal by 2022.

Canadian companies are getting close, with a reported 27% of women on boards. But we’re still a long way off from true gender parity. Thanks to growing interest from investors (including gender-focused funds) companies are starting to pick up the pace on this issue, says Tanya van Biesen, executive director of Canadian operations at Catalyst. Diversity policies aren’t mandatory in Canada, but the Ontario Securities Commission’s “comply or explain” rule essentially requires companies listed on the TSX to disclose the number of women on their boards as well as their policy on diversity, or else explain why they don’t have one.

Catalyst is urging companies to see diversity and inclusion as a talent issue and essential to creating a productive, innovative and profitable workforce.

Top 25% of organizations that have gender diversity in their executive leadership teams beat out the industry average on profitability and value creation.

“If [companies] are looking for motivated, educated, and talented people, [women are] an obvious place to look,” van Biesen says.  “There have been many studies done to indicate that a gender diverse team generates better outcomes that relate to reputation, financial performance, productivity, innovation and risk management.”

Investors should take note: investing in companies with gender imbalances can cost you – the top 25% of organizations that have gender diversity in their executive leadership teams beat out the industry average on profitability and value creation, according to an oft-cited January 2018 report by management consulting firm McKinsey & Company, an organization dedicated to improving the performance of corporations.

For investors who want to make a difference with their money, several firms have launched Canadian ETF products dedicated to this cause. How do they stack up when it comes to women in leadership?

Mackenzie Global Leadership Impact ETF establishes itself as the clear winner when measuring board diversity — its holdings have an average of 34.7% of women sitting on its companies’ boards.

Other gender diversity metrics reveal that the fund’s holdings have 30% of women in senior management and 34% have a woman CEO or CFO, according to statistics based on holdings as of August 31, 2018.

Evolve North American Gender Diversity Index ETF fares the worst in this lineup when it comes to women on boards (26.8%). To be fair, the ETF is optimized for a range of gender equity criteria that goes beyond the number of female directors. It follows the Solactive Equileap North American Gender Equality Index, which scores companies on 19 different criteria, such as the gender balance of senior management, recruitment strategy, supplier diversity, and freedom from violence, abuse and sexual harassment.

Michael Simonetta, chairman of Toronto-based Evolve Funds Group Inc., says gender diversity should be measured across company culture, so it’s “not really a concern” if Evolve North American Gender Diversity Index ETF has a lower number in the women on boards category than competitive funds.

“You can have a board with 40% women, but if your policies are negative toward women in the workplace, how good is that from a gender balance perspective?” he asks . “It’s not.”

Fund Face-off

So, how well does the leading fund, Mackenzie Global Leadership Impact ETF (MWMN), hold up against one of the standard ETFs not pre-occupied with gender diversity?

The Mackenzie ETF trumps its benchmark (iShares MSCI World ETF) when it comes to promoting environmental, social and governance issues, with superior scores on average CEO-to-worker pay, gender diversity on boards, and its carbon footprint. Interestingly, the positive gender screen also results in more exposure to companies with products or services that benefit the environment, and less exposure to companies whose products or services have negative impacts like weapons and gambling stocks.

With regard to returns, the Mackenzie ETF is ahead of its iShares benchmark (XWD) on a year-to-date and one-year total return basis, but since its inception on December 3, 2017, it is behind with a 10.8% total return versus 12.5% for the benchmark.

Bottom line: the Mackenzie ETF offers investors significantly more gender diversity, a slightly better sustainability profile and comparable returns, beating its benchmark in two of the three time periods evaluated.

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Many ethical investment portfolios have excluded SNC for years, as this isn’t the first time the company has been embroiled in controversy. Some, including Michael Sabia, the CEO of SNC’s largest shareholder (Quebec’s Caisse de dépôt), believe the markets may have hammered SNC a little harder than is fair and say the company is still a good investment. Another shareholder is seeking damages through a proposed class action lawsuit.

If you have had enough, there are alternatives.

WSP Global, a similar company to SNC-Lavalin, recently eclipsed it as the largest Canadian engineering and construction firm. It has a bigger focus on environmental services, like water infrastructure, public transit, and waste management. The Montreal-based firm has a stronger governance structure that seems to understand sustainability risks. It was also on Corporate Knights’ 2018 list of the Best 50 Corporate Citizens in Canada.

That said, WSP Global isn’t squeaky clean. It provides lots of engineering services to the oil and gas and mining sectors, and the paucity of taxes it has paid over the past five years suggests the possibility of creative accounting. However, there’s no question who wins the Sustainability Showdown when comparing it to SNC Lavalin.

Here’s how WSP and SNC measure up:

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet!  

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing. He teaches people how to invest online and make intentional decisions with their investments. Twitter @timenash

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The date each year when humanity exhausts nature’s annual resource budget – known as Earth Overshoot Day – is now in August and this is moving backwards year after year. Understanding and acting to reduce the environmental footprint we have as societies, organizations and individuals is essential if we are to tackle global environmental challenges.

In the case of climate change, we actually need to have a negative carbon footprint by mid-century if we are to meet the “well-below 2 degrees” objective of the Paris Agreement. We need net-zero carbon emissions to stabilize the stock of carbon in the atmosphere, and that means reducing carbon emissions to zero in every sector we can, while also extracting and sequestering carbon from the atmosphere using biological, chemical and industrial processes at incredibly large scales.

Analysis by Nordea, the largest financial services group in the Nordic region, has found that moving one’s savings to sustainable funds can be 27 times more efficient in regard to improving one’s personal carbon footprint than eating less meat, using public transport, reducing water use, and flying less, combined.

Investors – from the largest institutions (such as pension funds, insurers and sovereign wealth funds) to the smallest millennial retail saver – are increasingly concerned with ensuring that their investments across different asset classes (such as listed equities, bonds, private equity and property) have smaller environmental footprints and that these become better aligned with different environmental thresholds.

As a result, there is a large and growing interest in using financial assets as an instrument to reduce the environmental footprints of companies. I doubt that this interest will go away, and I see it growing significantly over the coming years due to structural changes in both environmental preferences and demand for financial services in both developed and developing country markets.

Central to this is the idea that preferring less carbon intensive companies over more intensive ones will shift company behaviours and change environmental outcomes for the better. This will be partly realized through changes in the cost of capital: “green” companies will have access to cheaper capital than “brown” ones, shifting decisions in favour of less pollution.

But measuring environmental footprints across sectors, geographies and asset classes is not easy. And some argue that even if one can do so accurately and efficiently, in asset classes where investors are investing in extremely large and highly liquid secondary markets (think U.S. listed equities), it is hard to see how this could make a difference.

After all, the argument goes, in these deep secondary markets it is hard for any single investor decision to have much impact on anything, whether it is executive pay or company strategy, let alone carbon emissions. So why would an environmental footprint or carbon footprint-based set of investor preferences make any difference to company behaviour?

I certainly agree that the potential to shift company decisions in favour of positive environmental outcomes becomes harder and harder for the individual investor the larger and more liquid the market, and that by definition investors have much less influence on companies in secondary markets than in primary ones.

However, those who argue that this therefore means there is no value in investors acting on their preferences for lower environmental footprints through active ownership (or even disinvestment) miss some key insights about how norms and practices spread within societies and organizations, and how tipping points are reached. It is not the single marginal investor that we’re interested in, but the point when a substantial minority or majority of investors collectively shift their view and apply their influence in concert. So yes, there is a big collective action problem here, particularly in secondary markets, but it is not clear to me that this is an insoluble one.

Clearly, however, investors have a much greater chance of achieving their objective of lower company environmental footprints in markets where they can have more influence. This generally means primary markets and targeting smaller, less liquid markets or market segments. For example, you can have much more influence on a company via private equity than listed equity. Credit markets and bank loans could also be an effective way of applying pressure on companies, as there is often a limited number of lenders in many markets and geographies.

Similarly, sectors where there aren’t many buyers and sellers (e.g., coal-fired power stations) or where companies actually have positive choices aligned with decarbonization (e.g., automobile manufacturers) are areas where investors can have much more influence. Developing countries generally have much less sophisticated capital markets and are highly reliant on a limited number of providers of capital – this creates another set of opportunities for effective influence.

It is disappointing to see, therefore, that the vast majority of activity seeking to reduce companies’ environmental footprints targets the least suitable and hardest to change: international oil and gas companies listed in large secondary markets with a core business model that isn’t easy to shift. These seem like the least attractive targets for successful change and yet that is where the bulk of activity is, particularly among civil society actors. Civil society can also ignore the fact that investor relations departments are getting better at outmanoeuvring them and that their strategies and tactics are evolving. Imagine if the same energy focused on shifting the behaviour of international oil and gas companies had been focused on more suitable and easier-to-shift targets.

Investor influence on companies and their environmental footprints differs enormously by asset class, sector and geography, as well as (of course) by the size and reputation of the investor(s) in question. This needs to be much more clearly expressed to clients seeking to influence company behaviours through their investment choices.

A necessary starting point is understanding the environmental footprint that companies and assets in investor portfolios have, and what particular environmental issues are being targeted. The next step needs to be a much more realistic conversation about what influence is possible where, followed by an effective execution strategy that prioritizes concerted action and coordination with other like-minded investors. Asset managers and financial advisors need to up their game and provide these solutions. Only then is there a good chance that investors can actually reduce the environmental footprint of their holdings.

Ben Caldecott is the founding director of the Oxford Sustainable Finance Programme at the University of Oxford and co-chair of the Global Research Alliance for Sustainable Finance and Investment.

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