Project 4
Impact of Human Capital Based Investment Criteria on Total Shareholder Returns

Description

This study explores the impact of non-financial metrics, or social screens, on the market value of investments made by pension funds, both Canadian and international.

Introduction
More than 80 empirical studies have explored the relationship between the social and economic performance of firms. A small majority (53%) of these studies have found that when treated as an independent variable, corporate social performance is positively correlated to financial performance. In contrast, only 5% of studies found a negative correlation. In recent years, these studies have been supplemented by evidence from specialist stock market indices including: the Jantzi Social Index and Jones Heward indices in Canada, FTSE4Good, Domini Social Index and Dow Jones Group Sustainability indices internationally.

This study explores the possible impact of human capital based investment criteria on pension portfolios and extends work on corporate social performance. It explores the link (positive or negative) between human capital-related metrics and financial performance in firms. If a positive correlation is found it will provide a practical tool for pension trustees, allowing them to enjoy ‘win-wins’ from social and financial returns on their investments.

Methodology
The first phase of this study includes a literature review (academic and applied), interviews with union representatives, investment managers and Socially Responsible Investment (SRI) specialists as well as review of existing Canadian and international SRI social screens. A candidate set of human capital based investment criteria will be derived from this analysis.

The second phase of the study uses financial modelling approaches to test how a number of stock market tracker funds (eg based on the TSX), pension funds, endowments and/or other indices in Canada would have performed if rebalanced according to the candidate human capital investment criteria identified in Phase 1. Through this modelling, it should be possible to determine the relationship between particular screens and fund performance in stock market investments. The study will also assess the ‘generalizability’ of the findings by replicating this procedure in other geographical regions (including the UK) and controlling for risk profiles appropriately.

The third phase of the study examines institutional responses to the findings of this study and how it might affect the present structure of pension fund investments and financial markets. This will include qualitative research with those actors directly involved in pension fund management, the capital market and other identified stakeholders.

For further information, please contact David Wheeler: dwheeler@schulich.yorku.ca

Outputs

Papers

Milevsky, Moshe, Aziz, Andrew, Goss, Al, Thompson, Jane, & Wheeler, David.Cleaning a Passive Index.

Thomson, Jane, & Wheeler, David. Human Capital Based Investment Criteria for Total Shareholder Returns: A Canadian and International Perspective.

Academic Presentations

Wheeler, David, Milevsky, Moshe, Thomson, Jane, & Goss, Al. (2005, October 14). Cleaning a Passive Index: How to Use Portfolio Optimization to Satisfy CSR Constraints. Pensions at Work Conference, Toronto, Canada.

Thomson, Jane. (2005, March 31). Comparative Study of UK and Canadian Pension Fund Transparency Practices. Keynote presentation at a consultation meeting of The National Roundtable on the Environment and the Economy, Halifax, Nova Scotia.

Wheeler, David, & Thompson, Jane. (2004, October 17). In Pursuit of the Labour Practice Premium. Pensions at Work Conference, Winnipeg, Canada.

Wheeler, David, & Thompson, Jane. (2004, February 12). In Pursuit of the Human Resource Premium. Workshop on Backcasting, Schulich School of Business, York University, Toronto, Canada.

[to top of page]