Interview on the Desjardins’ SocieTerra Environment Fund
Desjardins Wealth Management offers a range of investment products that draws on a responsible investment (RI) approach. Rosalie Vendette, Senior SRI Advisor, answers our questions.
Can you tell us about Desjardins’s responsible investment products, specifically the Desjardins SocieTerra Environment Fund?
The Desjardins Environment Fund (DEF), as it was called when it was created in 1990, was the first responsible investment fund in Quebec and the second in Canada. The DEF invested in large-cap Canadian securities until June 2015, after which the fund became known as the Desjardins SocieTerra Environment Fund (DSEF), and it has a global mandate.
What were the main changes to the Desjardins SocieTerra Environment Fund (DSEF)?
Two major changes were made to the mandate of the DSEF. First, it went from a Canadian equity fund to a global equity fund in an effort to lower exposure to contentious sectors, including the energy and materials sectors. The second change involved the securities selection process; securities are no longer selected from a list of businesses deemed environmentally responsible but rather from a list based on environmental performance indicators.
What is the securities selection process like?
DESF securities are selected among approximately 2,500 companies from around the world. The portfolio manager selects the securities with the lowest environmental performance indicators, while ensuring regional and sector-based portfolio diversification.
Can you tell us more about these indicators?
To assess the companies’ environmental practices, the portfolio manager relies on data provided by external provider, Trucost. Trucost has developed a methodology that quantifies the impact these companies’ activities has on the environment by assigning a monetary value. It evaluates the cost of using resources (energy, water, land) and the cost of waste production (GHG emissions, air pollution, water pollution, garbage and other types of waste). So, securities are selected using the following environmental performance indicators:
- GHG emissions
- Water consumption
- The use of lands and ecosystems
- The production of waste and pollutants
Environmental impacts are then translated into financial costs for the company—one of the factors the portfolio manager takes into account when building a portfolio with the least environmental cost. But Trucost does more than just identify and quantify the impacts, it also calculates the monetary value of the companies’ natural capital dependency to help us understand and integrate the economic value of environmental risk.
Can you give us some numbers to support the intended impact of the Fund on the environment?
One of the goals of the Fund is to invest in companies with the lowest levels of GHG emissions. So, to measure and monitor this, we’ve compared GHGs generated by the Fund and the reference index. To be able to make that comparison, we have to put the two on a level playing field. We do so by calculating the GHG emissions that our Fund would create if it were generating a business volume of US$1 million. When we do this, the companies that make up the Fund generate the equivalent of 54.6 tonnes of CO2, while the levels of direct and indirect GHG emissions from companies in the Fund’s reference index is 285.4 tonnes. This shows that the Fund’s level of GHG emissions is 81% lower.
Here’s an example that clearly illustrates how companies stand out in the area of climate change: Enel Green Power, a company from the community services sector, set an ambitious goal of being fully carbon neutral by 2050 (zero emissions). Currently, 47% of the energy it produces comes from non CO2-producing sources.
Do any the responsible investment funds offered by Desjardins (i.e., DSEF, SocieTerra funds, and by extension the Ethical Funds) exclude any sectors from the potential investment field?
With the exception of weapons, tobacco and nuclear sectors, all Desjardins investment products using a responsible investment approach invest in securities and bonds from companies operating across all sectors of the economy, including energy.
Certain sectors, namely the heavy and natural resources sectors, may pose an environmental risk to other sectors. So it’s important to encourage and promote environmental protection, especially when we know that companies with good business practices not only have a positive impact on the environment but also influence and help set best practices for their sector.
Why are polluting companies that have a negative impact on the environment sometimes included in a responsible investment portfolio?
At Desjardins, we believe that investment products using a responsible investment approach have the potential to influence companies’ practices. First, our method of selection helps us identify the best players on the environmental front. Then, once the companies are included in the portfolio, we complete our approach through shareholder engagement by using diverse techniques and strategies to influence the selected companies and to encourage them to review their impact on the environment and take initiatives towards fighting climate change. I think dialogue, for one thing, is a very powerful tool.
What kind of dialogue will the DSEF have in 2016?
In 2016, Desjardins Wealth Management will reach out to 42 companies from the DSEF to incite them to release more environmental data. We know that most companies are reluctant to disclose information and so we’ve decided to raise awareness in that area. This will help them better understand our needs and, in return, it would improve the quality of environmental data that will be available.
Where can our readers get more information on these products?
The Desjardins Fund website is full of useful information. Desjardins members can acquire the SocieTerra portfolios through any Desjardins caisse in Quebec and in Ontario. Non-members and potential investors across Canada can call us at 1-866-666-1280. And Ethiquette readers can also speak with a personal finance advisor affiliated with DSFI (across Canada, except in Quebec) or the State Farm network in Ontario.
The Desjardins Funds are not guaranteed, their value fluctuates frequently and their past performance is not indicative of their future returns. The indicated rates of return are the historical annual compounded total returns as indicated the date of the present document including changes in securities value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The Desjardins Funds are offered by such registered dealers as the Desjardins Financial Services Firm, a mutual fund dealer belonging to the Desjardins Group that distributes the Funds in caisses through