Long-term investing and sustainability initiatives go hand in hand, says Ian Cooke, portfolio manager of the Morningstar four-star-rated NEI Ethical Canadian Equity. "There's this myth with socially responsible investing (SRI)," says Cooke, "that an ethical portfolio can be costly from a performance perspective. Having been involved in this for a long time now, I think it's very much complementary in helping drive long-term performance."
Cooke is a vice-president at Calgary-based QV Investors Inc., the sub-advisor to NEI Investments, which conducts the screening for socially responsible criteria. QV's investment strategy focuses on the fundamental quantitative strength of a company along with the qualitative strengths of management teams. "Both are absolutely essential," says Cooke.
Using a predominantly large-cap approach with a quality, value style, QV's discipline is based on holding periods of four to five years. With its emphasis on risk management to protect capital, QV seeks companies with strong balance sheets, strong cash flows, barriers to entry and competitive strengths.
QV's approach complements the input of NEI Investments, which screens companies for risks pertaining to environmental, social and governance issues. "The ethical-investing space has become a lot more about including things, not excluding things," says Cooke. In most industries, there are certain companies that meet the socially responsible parameters, as defined by NEI's ESG criteria.
For example, military providers are not entirely ruled out from consideration. Armaments for United Nations peacekeepers are considered ethically acceptable, says Cooke.
But tobacco products are a different story. "Tobacco," says Cooke, "would be a good example of where we have difficulty seeing how that whole sector could be sustainable."
In the energy sector, 
Suncor Energy Inc. (SU) is among the NEI fund's top 10 holdings, despite its extensive oil-sands operations in Northern Alberta. Suncor's presence in the fund illustrates how a more inclusive philosophy has evolved at NEI concerning natural-resources industries and their environmental impact.
A few years ago, Suncor would not have been considered for the fund. Today it represents a leadership position among oil and gas companies in terms of social responsibility, says Cooke. NEI's ESG team has been engaged with Suncor Energy for years in addressing environmental concerns.
Suncor is one of the resources companies, says Cooke, that has demonstrated its willingness to take a constructive, outspoken role on climate-change issues. "They have played an important role in the last year or so in the development of climate policy in Alberta and federally."
AltaGas Ltd. (ALA), based in Calgary, is another of the fund's holdings of energy-related stocks. AltaGas has gone from a small-cap energy infrastructure company to an emerging leader in responsible investing, says Cooke.
"They have partnered with different indigenous groups," says Cooke, "to bring projects to the execution phase in a much more inclusive, less confrontational fashion, as so many energy-infrastructure companies have done. AltaGas truly views their relationships, not as a hurdle, but as a partnership if their partners can benefit from the project."
The company has also demonstrated some leadership in terms of respecting the environment by investing in renewable assets. From a quantitative perspective, "they are inflation-protected with high-quality utility assets," says Cooke. "The company is also providing attractive valuation characteristics and an attractive record in terms of capital deployment."
Canadian Tire Corp. Ltd. (CTC.A), also among the top 10 stocks, illustrates what NEI favours in the retail sector. "We think Canadian Tire is very important from a Canadian sustainability perspective," says Cooke, for initiating sustainability in its supply chains. As well, the company is encouraging reductions in energy use and efficiency in its stores. "With more efficiency," says Cooke, "they are also saving money. So it's really something that all investors should be keen to see."
Importantly, Canadian Tire also meets QV's fundamental criteria, with its diversified chain of stores and experienced management. "Over the years, they have demonstrated their ability to generate attractive profitability, including during more challenging economic periods."
The financial sector currently represents 26% of the mandate, with recent top five holdings including Canadian Imperial Bank of Commerce (CM) and Bank of Nova Scotia (BNS). Along with meeting QV's fundamental stock criteria, Cooke says the financial sector has a great deal of influence on issues from a corporate-governance side. "We see the inclusion of those companies," says Cooke, "as a real opportunity to create positive change through in-depth corporate engagement to build the sustainability of the Canadian economy."
Socially responsible investing is gaining recognition, and popularity. "In the Canadian retail space," says Cooke, "responsible investment funds have definitely shown growth that exceeds conventional growth." As well, he adds, institutionally it's coming up more and more frequently in conversations.
Looking ahead, "I think there's huge growth," says Cooke, in the number of institutions that are joining the responsible investment coalitions and networks, wanting to learn more about responsible investments. That can lead to quite significant changes over time."
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