Who Pays Attention to Indigenous Peoples in Sustainable Development and Why? Evidence From Socially Responsible Investment Mutual Funds in North America

Abstract

Resource extraction and development have had significant impacts on Indigenous Peoples (IPs), and states have been slow to respond. The need for better engagement practices with IPs has been recognized internationally and in the academic literature. We examine the extent to which IPs and their rights are being recognized by non–state market–driven governance mechanisms meant to promote more sustainable business practices, in this case North American socially responsible investment (SRI) mutual funds. These funds are influential in defining SRI principles, and through shareholder activism they influence broader standards on corporate social responsibility and firm sustainability. Using a survey and a review of secondary internal documentation, we find that while some SRI funds do address IPs, recognition remains low. We find SRI funds that do pay attention have both more capabilities and a different investment orientation than those that do not, which we hypothesize limits broader uptake at this time.

Keywords

Indigenous Peoples socially responsible investment mutual funds natural resources sustainable development FPIC

Introduction

Globalization, industrial development, and the exploitation of natural resources have had profound environmental and social impacts (Giddings, Hopwood, & O’Brien, 2002). Indigenous Peoples (IPs) have typically borne many of the costs but gained few of the benefits of development, and have been described as the “victims of progress” (Bodley, 1998). IPs are often subject to human rights abuses and displacement because they stand in the way of natural resource extraction (Downey, Bonds, & Clark, 2010). Increasingly, firm transgressions are being publicized and companies are more often required to report on these transgressions (Dhir, 2012; Imbun, 2007), and scholars have called for better practices for engagement with IPs (Ballard & Banks, 2003; Banerjee, 2000). There has been little recognition and protection of IPs at the state level, and there are few cases of mechanisms to address impacts on IPs at a domestic level. However, at the international level, frameworks have been developed to protect IPs and their rights. These include the International Labor Organization (ILO) Convention 169 to the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) of 2008. Among many things, the UNDRIP calls for good faith and free, prior, and informed consent (FPIC) in resource development on Indigenous lands.¹ Indeed FPIC is being recognized as an important principle for extractive companies to obtain social license—but without uniform standards there is variability in the quality of this practice where it is even recognized by extractive firms at all (Owen & Kemp, 2012).

“Non–state market–driven” (NSMD) governance has emerged in response to the deficiencies of State institutions to adequately address sustainability issues (e.g., in forest and resource management; Cashore, 2002). The purpose of NSMD is to promote those firms and activities that reduce or mitigate negative impacts from globalization and development. NSMD governance includes diverse actors such as NGOs and civic actors, along with public and private actors, who can work in alliance to promote, define, and select preferred goods and practices through a diverse suite of mechanisms. These mechanisms can include certification of a firms goods and supply chain processes, corporate social responsibility (CSR) measures and public reporting on impacts, and market campaigns to either boycott or promote the activities of firms (Guay, Doh, & Sinclair, 2004).

Among the different NSMD components is the practice of socially responsible investment (SRI), a practice which guides individual and institutional investor behavior and includes shareholder advocacy appraoches to further investor aspirations that go beyond simply financial concerns. SRI funds see part of their role as ensuring firms mitigate social costs and internalize their negative externalities, given ongoing policy and market failure (Amaeshi, 2010). SRI has deep roots, dating back to the 1920s (Sparkes & Cowton, 2004), and has played an important role in supporting and furthering CSR, by providing methodologies, analyses, and techniques to help articulate and measure CSR as well as standards by which companies report on their impacts and activities.

In this article, we examine whether one element of NSMD governance, SRI, is addressing the gap between the recognized impacts of development on IPs and the lack of formal mechanisms to protect their rights. We focus on SRI mutual funds as a key element in the development of SRI, as these funds have been in the forefront of identifying issues and developing criteria that help define what constitutes SRI, along with the techniques by which to assess it (Arjaliès, 2010; Sparkes, 2001; Sparkes & Cowton, 2004). Although there is evidence that some SRI funds have been particularly active in shareholder engagement on IPs rights and FPIC (Allen, Letourneau, & Hebb, 2012; Coumans, 2012; Dhir, 2012), and several SRI funds have formed an SRI-IPs Working Group in the United States (Social Investment Forum [SIF], 2010), we do not know how widespread this recognition is among SRI funds or why some funds pay attention and others do not. Ultimately the effectiveness of SRI in addressing this issue depends on the extent to which it is more widely adopted and legitimized within SRI and the broader discourses around sustainability (Garriga & Melé, 2004).

This article aims to answer two key questions: Which SRI fund managers are responding to IPs? And why are they responding? These questions will be addressed, first by a review of the theory and literature and second through an analysis of two data sets: a survey of North American SRI Funds and a broader content analysis of their publications.

The remainder of this article is organized into three main parts: First, we briefly review SRI literature and then the existing literature on IPs and SRI funds (which is scant). Second, we describe our methodology and the results from our research identifying what characterizes those funds that pay attention to IPs. In the third section, we discuss how these results tie into various hypotheses about SRI decision making and the roles that they play. Finally, we provide concluding thoughts into how this IPs-SRI framework may evolve going forward.

SRI Philosophies, Policies, and Practices

Literature tends to view SRI as a group of investment practices rather than a uniform investment philosophy (Michelson, Wailes, Van Der Laan, & Frost, 2004; Renneboog, Ter Horst, & Zhang, 2008; Sandberg, Juravle, Hedesström, & Hamilton, 2009). Without a uniform set of principles to guide the development of investment criteria (Mackenzie, 1998; Sparkes, 2001), there is a great deal of latitude in what firms SRI funds can select in their portfolios, the type of issues funds identify as important, and the techniques and criteria they adopt to assess how sustainable and responsible a firm is. There is an observed tendency among institutional and individual SRI investors to place greater importance on environmental issues over social and governance-related issues in making investment decisions and to define what is “socially responsible” internally (Berry & Junkus, 2013; Nikolakis, Cohen, & Nelson, 2012; Rosen, Sandler, & Shani, 1991). SRI funds are also aware that they must offer competitive returns. For example, Nikolakis et al. (2012) observe that SRI funds avoided investing in the forest sector, not because of perceived risks but rather because the sector was not viewed as an attractive investment opportunity. SRI funds must also pay attention to what their customers (both existing and potential) demand, and not everything about CSR is profitable—hence little attention may be paid to fringe issues that do not generate profits for firms and provide returns for SRI funds and their customers (Amaeshi, 2010).

The responsiveness of SRI funds to fringe issues (issues that are not profitable) may be explained by whether the fund is motivated by deliberative ethical reasoning, a “deliberative values-based approach,” or driven by competitors and customer needs, a “market-led approach” (Mackenzie, 1998). Drawing on Mackenzie’s observations, SRI funds can be segmented on ethical reasoning into ‘leaders’, the deliberative funds, and ‘followers’, the market-led funds. This segmentation is predictive of how SRI funds will behave on “fringe” issues that may not necessarily generate financial returns but are of ethical and moral significance to investors. Under resource-based theory, firms can create a sustainable competitive advantage be enacting a strategic CSR strategy (McWilliams & Siegel, 2011). A strategic CSR strategy is where firms pursue a socially responsible activity that sets it apart from its competitors. For SRI funds this could include pursuing an ethical reasoning approach and focusing on fringe issues, like that observed by Mackenzie—in turn the strategy can generate sustained profits to the firm if it is valued by customers (determined by their willingness to pay) or if it is difficult to imitate, also if the strategy differentiates firms and boosts their reputation in the market, for example, by building an image of sincerity (McWilliams & Siegel, 2011; Orlitzky, Siegel, & Waldman, 2011).

However, institutional theory explains that firms may pursue CSR strategies to retain legitimacy and not simply to generate profits. Brammer, Jackson, and Matten (2012) argue that firms (and actors) are embedded within society and will respond to norms and values within its social, economic, and political systems. It is in this dynamic that NSMD governance mechanisms, like forest certification, become legitimated through the practices of firms and actors (Garriga &Melé, 2004). However, what is defined as “socially responsible” can be contested, leading to divergent perspectives and outcomes.

SRI funds utilize a diverse range of techniques and practices in their investment activity. Some follow more passive approaches, relying on screens to either filter out or select investments in a mechanistic way (the “exit strategy”), while others take a more activist role (the “voice strategy”; Angel & Rivoli, 1997). Firms may adopt both the exit and the voice strategies, though it is acknowledged that shareholder activism, or the voice strategy, is viewed as offering greater potential to further CSR, as SRI funds utilize their shareholder rights to leverage change in target firms (Sparkes & Cowton, 2004). Indeed, some funds are more active than others and have been successful in effecting improved CSR in target firms (Dhir, 2012; Guay et al., 2004). More generally, Renneboog et al. (2008) propose that SRI funds pass through a progression of practices, moving from negative screens initially to a fourth phase culminating in shareholder activism (although here is no empirical validation of this progression). Dhir (2012) notes that the scope for shareholder activism has increased in North America, offering greater potential for SRI investors (and civil actors) to further CSR through the voice strategy, which he anticipates could bolster the protection of IPs rights.

Indigenous Peoples and SRI

There is a relative dearth of work directly examining the relationship between IPs and the practice of SRI. In a review of secondary data, Richardson (2007) found that 26 of the 110 SRI mutual fund products in North America had IPs-related screens or criteria, but these may not explicitly include IPs and may, for instance, be human rights’ or local communities’ screens. Richardson concludes from his analysis that IPs and their rights attract less attention among SRI funds than issues such as the environment and climate change. A year later, Adamson and Klinger (2008) in an unpublished work, surveyed 50 U.S. SIF members (while there is no breakdown of actual participants, we are told these included some SRI funds), finding that 34 of the respondents included concerns for IPs in their practice (including screens or criteria), most often incorporated within a broader human rights concerns. However, there was no verification as to whether these were actual policies (through an analysis of company documentation) or how widespread the practice was among SRI mutual funds.

Dhir (2012) provides a detailed analysis on how shareholder activism can encourage change in mining companies involved in transgressions in developing countries, noting that activism has been quite effective at influencing company behavior. For example, Goldcorp Inc. was subject to a shareholder proposal, and a cofiler was Ethical Funds, requesting that Goldcorp undertake an independent Human Rights Impact Assessment at their Marlin mine in Guatemala. The proposal was adopted and the assessment undertaken, guided by an executive from Ethical Funds. The result was that Goldcorp voluntarily increased royalties paid to communities, and it published a new human rights policy, formalizing its commitment to respect the rights and traditions of IPs, consistent with ILO 169.

Thus, while there is evidence that SRI funds recognize IPs, and there are examples of ways in which they have affected CSR, there is no current assessment of whether or not SRI funds are paying any more attention to IPs, especially as the protection of IPs has emerged internationally as a more pressing topic. Beyond that, we are also interested in what factors may be influencing whether or not SRI funds are paying attention to IPs, and in what ways they are paying attention. In order to address these questions, we first need to understand what motivates SRI, and how this can be used to build a framework by which we can analyze how and why IPs become part of SRI funds decision-making criteria.

Hypotheses/Propositions

Our research objectives were several-fold. First, we wanted to find out to what extent IPs are being incorporated into SRI funds decision making today by identifying which funds were paying attention to IPs. Second, we wanted to explore what differed between those SRI funds paying more attention to IPs and those that did not. In undertaking that analysis we started with two general hypotheses/propositions. The first is that SRI funds that are IPs focused would have a different investment orientation than non–IPs-focused funds, favoring distinct issues reflected in their decision-making criteria. The second hypothesis is that funds’ distinct capabilities could explain whether SRI funds identify IPs as an issue, and gather the requisite information needed to guide action. Imbun (2007) has noted it is difficult to access credible data on IPs, perhaps requiring more resources to obtain and verify these data.We expressed this capability in three different ways: first, the size of the funds (resources available to them); second, their information sources; and third, links to NGOs that can provide both information and the salience of the issue through an institutional lens. We also sought to explore any linkages between involvement in IPs and types of investment practices by SRI funds (i.e., more passive or active approaches).

Method

To understand the level of importance and practices related to IPs among SRI funds, and to illuminate the complex ways IPs issues are translated and interact in SRI practice with firm behavior and CSR, we employed a three-pronged approach in our research design, using both quantitative and qualitative methods.

The first component of our inquiry involved an exhaustive content analysis of secondary data from 73 parent SRI funds in North America (the total membership of the SIF and Social Investment Organization, plus those we could find through web search engines who are not members). The aim was to understand their investment practices (i.e., voice and exit strategies) and the content of their investment practices and decision making, reviewing their websites and online publications (including annual reports and regulatory filings), with key search words: Aboriginal Peoples, Indigenous Peoples, Native American, human rights, and local communities. We also reviewed the IPs policies of SRI funds to understand their content.

We focused on North American SRI funds for two reasons. First, existing international initiatives and discussion have centered on the impact of resource and extractive industries on IPs, and the natural resources sector is important in both the United States and Canada. As Hong and Kostovetsky (2010) describe, the extractives are politically sensitive industries, and because of their potential environmental impact they can face a great deal of scrutiny. Second, while the policy and legal framework around IPs and their rights is still evolving, generally speaking, IPs rights within North American legal frameworks are familiar to fund managers.

The second part of the analysis involved information collected as part of a broader survey of SRI funds in North America, conducted in 2007 and then replicated in 2011. We utilized a survey as there is little detailed information on decision making by SRI funds (Nikolakis et al., 2011). There was no mention of IPs in the cover letter or survey sent out to participants to mitigate social desirability bias. In this study there was a disproportionate sampling of Canadian SRI funds relative to U.S. funds. We would expect IPs to emerge as an important issue in Canada for two additional reasons. First, in Canada, resources/extractives make up a broader part of the economy, so it is expected that these issues and concerns have more salience. Second, IPs concerns have taken on increasing political importance due to evolving legal discussions around IPs rights, making the need to accommodate IPs in resource development even more pressing (Blackburn, 2005).

The survey conducted in 2007 had 34 fund respondents. Twenty of those respondents subsequently responded to our survey in 2011, out of a total of 31 respondents. We found no changes in those 20 respondents in their interest in IPs between 2007 and 2011—interest and disinterest remained stable.

To assess the current landscape, we focused on the 31 respondents to the 2011 survey ($41 billion USD invested). From respondents answers, and corroborated by content analysis described above, we were able to identify 7 funds within our 2011 sample that identified IPs as an important element in defining SRI, versus 24 that did not focus on IPs issues in their practice. We then examined differences between these two groups, IPs-focused and non–IPs-focused funds, using information gathered directly from the survey data on the relative importance of different elements of SRI. These included fund size, investment orientation (environment, social or governance), nonfinancial information sources relied on in creating portfolios, investment practices (e.g., screening), investment exposure and attitudes toward resource-based and extractive industries, and relationship with nongovernmental organization (NGOs), among others.

Survey data on fund characteristics and responses were analyzed using the program R Version 2.14 (R Development Core Team, 2011). Proportions, presented as percentages, were compared using a two-sided Fisher’s exact test, in which a probability or p value is calculated directly from a hypergeometric distribution using the data arranged in a 2 × 2 contingency table (Agresti, 2012). Because the IPs-focused group is composed of 7 SRI funds, simulations were run with the same proportions in that group but with more data. The differences mentioned in the conclusions do attain significance when sample sizes for IPs-focused funds are approximately equal to those of the non–IPs-focused group. Company size for the IPs-focused and non–IPs-focused groups were compared with a two-sided t test allowing for unequal variances (Welch test; Welch, 1938, 1947), where degrees of freedom were determined using the Satterthwaite approximation (Satterthwaite, 1946). Where scores for answers to questions ranged from 1 (strongly disagree) to 5 (strongly agree), the same approach was used as above (Rosner, 2010).²

The third part of analysis involved a more in-depth qualitative examination of five leading SRI funds on IPs who are members of the SIF-IPs Working Group (SIF, 2010) or were identified in Richardson (2007) as current “leaders” within SRI for their history of activism (confirmed through either the content analysis or the survey). These leaders provided greater detail on their policies and activities related to IPs that allowed us to delve more deeply into their motivation for addressing IP concerns and their approach.

Secondary Data Results

In our content analysis of 73 SRI funds more broadly we found that only 4 of 73 funds had explicit IPs-related investment criteria. Twenty-six funds did have social or human rights criteria, but they did not explicitly mention IPs or their unique rights, or make reference to issues like FPIC. However, 21 of the 73 funds (29%) stated in their annual reports or other regulatory filings that they had engaged in shareholder activism on IPs-related issues (including informal dialogue with target firm executives, shareholder resolutions, or proxy voting). On further review we document that 10 of these 21 funds engaged in proxy voting alone: where their votes were delegated to another party who voted on behalf of the fund. There was no detail in their proxy voting policies relating to IPs; hence the delegation is likely issues based. Another 6 of the 21 funds stated broadly that they had general policies on shareholder engagement related to human rights, and on a more in-depth reading these funds had engaged in dialogue with executives (formal and informal), proxy voting, or shareholder engagement on issues that did concern local communities and social concerns—but IPs were not identified as having unique rights. There was little detail on the kinds of issues raised; hence the focus on IPs appears less systematic than the remaining 5 of 21 funds, who made explicit a policy of engaging in shareholder activism (dialogue, proxy voting, and shareholder proposals) relating to IPs. An important characteristic of these 5 funds was the explicit importance of FPIC, which was not mentioned by any of the other funds.

Survey Results

Our survey responses do show differences between those funds that pay attention to IPs and those that do not—particularly around criteria, investment orientation, and capability. Our first hypothesis is that SRI funds that are IPs focused would have a different investment orientation than non–IPs-focused funds. In the survey we asked funds to prioritize between environmental, social, and governance (ESG) criteria to highlight their investment orientation. Respondents were asked to rank each broad area 1 to 3, with 1 being the most important. IPs-focused funds were more likely to prioritize Social criteria over Environmental or Governance criteria.

Table 1 presents the results from a Fisher’s exact test comparing the ranking by respondents of ESG criteria. The p value (.07817) is likely a result of the small sample size of the IPs-focused group (n = 6). However, the results show that IPs-focused funds prioritize Social and Environmental criteria, and ESG criteria equally but in aggregate weight Social criteria higher than the non–IPs-focused funds.

Table 1.

How IPs-Focused and Non–IPs-Focused Companies Prioritize ESG Criteria.

	No. of funds	Social rank 1, %	Social rank 2, %	Social rank 3, %	ESG, all equal, %	Social and environment equal, %
IPs focused	6	16.7	16.7	0	33.3	33.3
Non–IPs focused	21	14.2	28.6	28.6	28.6	0

Note. IPs = Indigenous Peoples; ESG = environmental, social, and governance. ESG rankings were provided for a total of 27 companies.

We then explicitly asked respondents to rank their most important criteria in evaluating natural resource firms. Three of the seven respondents identified “impact on Indigenous Peoples” as the most important criteria in evaluating natural resources stocks in 2011. Next we asked funds whether or not they invested in mining, forestry, and extractive energy stocks. A positive answer equaled 1, and firms investing in all of these industries would score 3. We found that the IPs-focused funds invested more in the natural resources sector (particularly in extractive energy; Table 2).

Table 2.

Size of IPs-Focused and Non–IPs-Focused SRI Funds, and the Areas in Which They Invest.

	No. of funds	Average size (USD millions)	Investment areas, %
	No. of funds	Average size (USD millions)	Mining	Forest products	Extractive energy
IPs focused	7	2,187	85.7	85.7	100
Non–IPs focused	24	1,071	79.2	79.2	75
p		t = −1.23 (degrees of freedom = 10.98), p = .2443	.817	1	.293

Note. IPs = Indigenous Peoples; SRI = socially responsible investment.

Our second hypothesis is that firm capabilities would explain the ability of SRI funds to select IPs and generate the data necessary to drive activity. We first examined the size of the fund as a proxy for the resources available to the fund in order to access data and information on IPs. We compared the average size of the responding funds using a two-tailed t test, allowing for unequal variance and using Welch’s approximation of degrees of freedom (Table 2). The proportions were compared using two-sided Fisher’s exact test. We find that on average IPs-focused funds are larger ($2.87 billion, compared to $1.071 billion USD for non–IPs–focused funds).

We also asked respondents to identify the information sources on which they rely. Funds were asked whether they were more likely to use their own criteria, customer preferences, or independent agencies in evaluating their investment decisions (0 represented no involvement and 1 indicated yes). Respondents were also asked whether or not they solicited input from NGOs in formulating their criteria (with 0 representing no involvement and 1 representing involvement). Table 3 presents the results; p values are from a two-sided Fisher’s exact test. The test uses a hypergeometric distribution to directly calculate a probability and thus does not produce a test statistic. The results show that IPs-focused funds are more likely to utilize independent agencies and rely less on customer preferences than non–IPs-focused funds. They also sought greater input from NGOs relative to IPs-focused funds.

Table 3.

How IPs-Focused and Non–IPs-Focused SRI Funds Choose Investments.

	No. of funds	Use of negative screens, %	Investment evaluation, %			NGO input, %
	No. of funds	Use of negative screens, %	Own criteria	Independent agency	Customer preferences	NGO input, %
IPs focused	7	71.4	85.7	85.7	14.3	42.9
Non-IPs focused	24	75	91.7	62.5	25	20.8
p		1	.293	.379	1	.335

Note. IPs = Indigenous Peoples; SRI = socially responsible investment; NGO = nongovernmental organization.

Table 3 also highlights there was little difference between the use of negative screens between IPs-focused and non–IPs-focused funds.

Motivation and Practice: Insights From SRI-IPs Leaders

We used the additional information available on the five SRI funds identified as “IPs thought leaders” to better understand the more detailed ways in which SRI funds address IP issues. The four U.S. funds (Calvert, Pax World, Boston Common, and Trillium) are members of the IPs Working Group, while NEI Investments (formerly Ethical Investments), the only Canadian fund, has been publicly active in furthering IPs rights (one example with Goldcorp was presented earlier in the article). The IPs Working Group aims to build awareness of and encourage research on SRI investing and its interaction with IPs. Four of the five members also participated in our 2011 survey (we were unable to reach Boston Common).

Within the “thought leaders” we can identify a more deliberative approach to their investment practice, with a strong emphasis on nonfinancial values in their investment philosophy. We find strong links between their practice and emerging concepts such as FPIC. Four of the five funds specifically highlight that FPIC has been one of the most important issues for shareholder activism on IPs, particularly in the extractives sectors.³On the issue of FPIC, Boston Common and Calvert engaged ConocoPhillips (along with other civil actors such as NGOs and church groups) to recognize and implement FPIC as a policy for engagement with IPs, which it did in 2011 (Boston Common Asset Management, 2011; Calvert Investments, 2012). A coordinated “voice” strategy (between SRI and civil actors) is seen as an effective way for SRI funds to help overcome their relatively small size compared to the overall capitalization of energy and mining companies (Guay et al., 2004).

Shareholder proposals commenced by these leading SRI funds have garnered strong support in large companies, for example, NEI encouraged Enbridge to seek consent from First Nations in Canada for its Northern Gateway pipeline (NEI Investments, 2011). In 2008-2009, Trillium voted on a shareholder resolution on First Nations consent for the project, which gained 32% of shareholder votes (Trillium Asset Management, 2009). If these shareholder proposals gain strong shareholder support, they are able to facilitate the “voice strategy,” which can encourage a change in firm practices.⁴ If the voice strategy fails, some funds may employ an exit strategy. Two of the thought leader funds have divested from their portfolio companies that failed to improve their performance on engaging with IPs. Calvert divested forest giant Weyerhaeuser for its poor engagement with the Grassy Narrows First Nation in Ontario (Calvert Investments, 2012). After talks failed, Weyerhaeuser was removed from the Calvert Social Index and divested by Calvert.⁵ In 2009, NEI divested shares of forestry company AbitibiBowater because of ongoing tensions with the Grassy Narrows First Nation (NEI Investments, 2009).

Discussion

Our results show that IPs and their rights still fly below the radar screen for most SRI funds. As our content analysis revealed, IPs are seldom made explicit in the investment criteria of SRI funds. The survey results show that from 2007 to 2011, there was no increase in the number of respondents identifying IPs as one of the most important criteria in evaluating natural resources firms. This result is consistent with the findings of Richardson (2007), who concluded that IPs attract significantly less attention among SRI funds than broader environmental issues, such as climate change.

The second general purpose of this research was to illuminate why some SRI funds are paying attention to IPs, and we address this by investigating two hypotheses. In answering our first hypothesis—that IPs-focused funds would have a different investment orientation than non–IPs-focused funds—our results show that in aggregate, IPs-focused funds did value social criteria more than non–IPs-focused funds. This finding indirectly confirms Richardson’s (2007) observation that SRI funds tend to pay greater attention to environmental criteria—and those that do are less likely to pay attention to IPs or broader social issues in which IPs are often embedded. We do acknowledge that separating social and environmental criteria under the banner of ESG may be artificial and run counter to Indigenous holistic perspectives (Loomis, 2000), particularly as the environment and IPs rights and livelihoods are highly interdependent. The preeminence of environmental criteria by non–IPs-focused funds has the potential for IPs rights to be downgraded in importance by the activities of SRI funds. For example, this may occur where IPs favor a resource project to deliver jobs to their communities but environmentally focused SRI funds disapprove and work to stop the project through shareholder activism, or where a conservation area is created which limits IPs subsistence activities. Because of this, Dhir (2012) suggests that SRI funds and IPs work closely together to prevent negative outcomes on IPs rights and their further marginalization.

There could be several reasons why environmental criteria are most important to SRI funds. For instance, big-picture issues like climate change may appeal to a broader customer base while another reason is that “environmental” criteria cover a broader gamut of subcriteria and for which information can be more easily obtained and verified, while information on IPs may be difficult to gather and obtain (Imbun, 2007). As well, there are challenges in validating information on IPs, and measures are often rudimentary (Munsen, 2012). Reliable information that is objective and easily integrated into investment decisions is central to the competitiveness and credibility of SRI (Amaeshi, 2010; Laufer, 2003). Drawing on a resources-based view as set out by McWilliams and Siegel (2011), this may also help explain why larger funds in our sample do look at IPs as they are likely to have sufficient resources to access and verify this information, which they can then see as a way to differentiate themselves. For example, we also found that the IPs-focused funds invest more in the natural resources sector, particularly in extractive energy. This enhances the salience of IPs issues, particularly as resource companies expand into new areas where IPs rights may be transgressed. Those SRI funds that encourage and invest in extractive firms that obtain social license are likely better placed to manage nonfinancial risk and to develop a sustainable competitive advantage through their leadership role on what is a fringe issue in “returns-driven” financial markets. A focus on IPs by these funds may not be entirely altruistic: IPs may appeal to the customer base of these funds, and a more deliberative approach may enhance the sincerity of the funds’ brand image, which is important in this competitive field.

In answering our second hypothesis, we explored the capabilities of funds and found that IPs-focused funds are larger and draw on more third-party information sources to address IPs issues. The survey results show that IPs-focused funds are more likely than non–IPs-focused funds to seek input from NGOs in making their investment decisions. It may be that a combination of these professional networks, independent information providers, and internal resources is important in identifying credible sources of information on transgressions against IPs as well as keeping abreast of the dynamic policy and legal changes in this space.

We observe that IPs-focused funds are larger, so they have the scale to engage with larger, well-capitalized extractive firms. In addition, these larger IPs-focused funds develop alliances with NGOs and civil actors that create more leverage to enable improved CSR among extractive firms (Guay et al., 2004). As referenced earlier in the article, one such alliance encouraged the energy giant ConocoPhillips to formally adopt an IPs engagement policy. The link with NGOs may also suggest that IPs-focused funds are more connected to civil society and, in turn, more responsive to society’s values. Drawing on an institutional lens, Brammer et al. (2012) observe that firms operate within social, economic, and political systems. Actors within firms may adopt the norms and values of their personal and professional networks into their work practice. Hence, the movement to a “sustainability culture,” which addresses the externalities of globalization, likely diffuses through individuals and then permeates into institutions (Starik & Kanashiro, 2013). Firms may have to alter their internal structure and mission to formalize the adoption of these values, and these institutional changes can then enable a transformation to a more sustainable focus (Zollo, Cennamo, & Neumann, 2013). We observe that the SRI-IPs leaders are formally involved in IPs-related initiatives and explicitly emphasise the importance of IPs in their investment criteria and shareholder activism, evincing more formalized structures and processes on IPs to entrench these values. Supporting this observation, we see these IPs-focused funds playing an important role in legitimating voluntary standards like FPIC, through their voice and exit strategies. For those funds addressing IPs, there are clear linkages to ongoing discussions on IPs at a global scale. For example, a portfolio manager elaborates in 2011:

Oil sands and shale oil are big issues, as is relationships with First Nations . . . Mining issues outside of Canada are important, particularly relationships with impacted communities. Free prior and informed consent and relationships with First Nations is another prominent issue.

In this way SRI funds, as nonstate actors, are addressing policy and market failure under an NSMD approach as conceptualized by Cashore (2002).

Another finding was that despite observances by Renneboog et al. (2008) that SRI operates on a continuum of practices—such as a progression from negative to positive screens, to ESG investing, and on to shareholder activism—we found no evidence of a discrete progression among funds, at least in terms of the practices employed around IPs. All funds, even those involved in activism, used negative screens, and we found the use of negative screens remained consistent across surveyed funds over the two survey periods. This suggests the practices are relatively stable among SRI funds.

Conclusion

Our findings show that IPs are still not a prominent part of the agenda for North American SRI Funds. For those SRI funds that do pay attention to IPs, our results confirm two hypotheses around why they pay more attention. The first is that IPs-focused funds, in aggregate, value social criteria higher, while non–IPs-focused funds place more importance on environmental criteria. We also document that IPs-focused funds are more exposed to the natural resources sector, so IPs are more salient to their practice. However, IPs-focused funds have been actively legitimating voluntary standards like FPIC, through voice strategies (activism), and this standard may be entrenched into exit strategies (screens and criteria, and divestment policies). The key question then becomes this: To what extent does the practice become adopted more broadly within SRI, or will it remain a niche part of SRI, and perhaps continue to offer a competitive advantage to those funds focused on IPs?

In answering our second hypothesis, we show that IPs-focused funds have distinct capabilities. They are larger, capable of drawing on more resources and information sources, and they have a broader range of networks. These capabilities enable IPs-focused funds to gather and validate data on IPs, as well as to engage with companies on IPs-related issues. There are competing theories as to why a firm will pursue strategic CSR. A resources-based view offers that firms, like IPs-focused funds, will seek to actively differentiate themselves in the market place—in this case SRI funds can do this through their shareholder advocacy and involvement in bodies such as the SIF-IPs Working Group. Involvement in these groups is likely to enhance the sincerity of the IPs-focused funds’ reputation. Given that these IPs-focused funds are typically larger, it is likely that they have been able to attract customers that have a willingness to pay for social-oriented funds (and related advocacy). A focus on IPs may provide a competitive advantage to these funds in the marketplace, in an area that is in flux and likely to become more important in the natural resources sector. In that case there may be market-driven reasons as to why other funds may adopt a similar orientation, criteria, and practices. Alternatively, taking an institutional theory lens, in which firms are primarily not by driven profit but by the expectations of them in social, economic, and political systems, we observe that IPs in this case may remain a fringe issue until such time as they are more broadly recognized within society rather than simply among a few leading SRI funds.

Looking ahead, we can expect that, as the extractive sectors move into contested areas, IPs will take on more significance to fund managers, and in turn FPIC will grow in importance and fund managers will play an important role in how it is implemented and legitimated. There was agreement among respondents that common standards were emerging, important to their practice, such as the Global Reporting Initiative. Further research to understand the legitimation process for NSMD initiatives, like FPIC, could deliver practical and theoretical outcomes. In particular, future research could expand on this work to determine under what circumstances more market-based investors will start to place importance on IPs. Will it become more of an accepted norm, or will it continue to be part of a pragmatic assessment by investors and firms? Or will there even be potential conflict if the emphasis on the environment by SRI funds comes at the expense of IPs by undermining their livelihoods?Such questions are fundamental to answering whether IPs will become important to sustainable development or remain a fringe issue, overshadowed by issues such as climate change.

Footnotes

Appendix

The survey format involved open- and closed-ended measures, administered in a semistructured telephone interview. The list of potential respondents was drawn from the Social Investment Forum (SIF) and Social Investment Organization (SIO) membership (a Google search was also undertaken to engage funds outside these associations). Phone contact was first made to obtain the name and e-mail of an appropriate contact. In 2007, effective contact was made with 73 SRI funds, resulting in 34 completed surveys (a response rate of 46.5%). In 2011, effective contact was made with 67 SRI funds, and 31 respondents completed a survey (46% response rate). Based on SIF and SIO data, the study comprised a solid proportion of the sector: 34 SRI funds with 20.75% of all SRI funds by capital responding in 2007 and 31 respondents totaling 12.5% of the SRI funds by capital in 2011. This is based on aggregated data, where in 2010, there were 250 socially screened mutual fund products in the United States, with assets of $316.1 billion (SIF, 2011). This has grown from 173 different SRI mutual fund products available in 2007 worth $171.7 billion in total net assets (SIF, 2007). Canadian SRI mutual funds accounted for $4.4 billion in assets in 2006 (SIO, 2007); then growing to an estimated $12.4 billion in 2010 (SIO, 2011).

Typically the respondent was an analyst or a fund manager and had in-depth knowledge on how the fund develops and applies its investment criteria. We acknowledge that there may be some level of subjectivity in responses; as well data may be skewed by “social desirability bias,” where the respondents express certain socially acceptable opinions over what they really perceive (Babbie, 2010; Randall & Fernandes, 1991).We provided assurances of anonymity and nonattribution to help mitigate this problem; as well we sought to triangulate primary and secondary data to verify information by testing whether statements made by interviewees were true.

Transcripts were prepared and sent to respondents for verification. Data from interviews was entered into a database and then imported into NVivo for data analysis (a qualitative analysis program). NVivo was used to support analysis of the responses from interviews. NVivo has been widely used in social sciences and applied in research on SRI (see Amaeshi, 2010). Analysis was completed by an independent researcher who was not involved in data collection, to help support objectivity. The content from interview questions was analyzed, first by a thematic coding of the respondents answers, which occurred in an inductive way. Codes developed by the researcher were descriptive to accurately describe the contents of the theme (Miles & Huberman, 1994). The codes were then used to make descriptive statistics in the form of proportions—percentages could be obtained by dividing the frequency by which a code was mentioned by the sample size (i.e., in 2007 n = 34, in 2011 n = 31).

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.

Notes

Author Biographies

William Nikolakis, PhD, LLB, BBus, is a lawyer and postdoctoral fellow at The University of British Columbia, Faculty of Forestry, and his research interests are focused on Indigenous Peoples, socially responsible investment, and natural resources management. He works with Indigenous Peoples in Australia and Canada, supporting enterprise development and examining the implications of market-based approaches on Indigenous Peoples and their livelihoods (e.g., water markets, and payment for ecosystem services).

Harry W. Nelson, PhD, MPP, is currently an assistant professor at The University of British Columbia, Faculty of Forestry. His long-term research interest is in analyzing natural and environmental resource policy with an emphasis on forestry and in developing new policy options that can help enhance the long-run sustainability of resource use.

David H. Cohen, PhD, is a professing of marketing at The University of British Columbia, Faculty of Forestry. His research interests include sustainability, corporate social responsibility, and the transformation of businesses to meet opportunities in the green economy.

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