Socially responsible investing (SRI) is not only gaining in popularity in the United States, but is growing at a faster pace than the broader universe of all investment assets under professional management, according to a report.
The Social Investment Forum’s 2007 U.S. Report on Socially Responsible Investing finds that almost 11% of assets under professional management in the U.S. are now involved in SRI, a 324% jump from 1995. Between 2005 and 2007, SRI assets grew 18% compared to the rest of professionally managed assets, which increased 3%.
Cheryl Smith, executive vice-president of Trillium Asset Management Corporation explains the phenomenon: “Thanks to growing institutional investor demand and a wide range of issues that are driving stronger retail investor interest, socially responsible investing is thriving today as never before.”
“Increasingly, money managers are incorporating social and environmental factors into their investing practices acknowledging the demand of social investing products and services from institutional investors, socially concerned high net-worth clients, individuals seeking SRI options in their retirement and college savings plans, and mission-driven institutions, including endowments, labour unions, and faith-based investors.”
The report identifies US$2.71 trillion in total assets under management using one or more of the three core socially responsible investing strategies: screening, shareholder advocacy, and community investing. By maintaining these strategies, SRI has seen healthy growth in the past two years, up from $2.29 trillion in 2005.
Assets in all variations of socially and environmentally screened funds grew to $201.8 billion in 2007, up 13% from 2005. The largest portion of socially and environmentally screened funds is mutual funds, which totaled $171.7 billion in net assets at the end of the study and are comprised of 173 different funds available in 358 different share classes.
Eight exchange-traded funds (ETFs) were identified for the first time in the report. Although ETFs only accounted for 1% of the total assets of all socially screened funds at the outset of 2007, they are a promising catalyst for SRI growth down the road.
“Socially screened exchange-traded funds have exploded onto the scene, driven by an interest in clean technologies such as solar energy, wind energy, energy efficiency, water purification and conservation, and green buildings,” says Alisa Gravitz, executive director of Co-op America. ”Issues like climate change and the crisis in the Sudan are driving a whole new wave of institutional investors, mutual fund families, and money managers to get involved in socially responsible investing.”
Alternative investment funds and other pooled products garnered special mention in the report, with assets of $5.3 billion and $21.7 billion, respectively. The growth of these funds is a result of many factors, such as growth of existing funds, development of new funds, and identification of pre-existing funds that may not have been captured in previous reports
Another high-growth area in SRI is socially and environmentally screened separate accounts. Accounts managed for institutional and high-net worth individuals constituted the bulk of assets tracked in 2007, and have increased almost 28% from 2005. There were $1.88 trillion in assets are managed in institutional client accounts, up 27% from 2005, and $39.5 billion is managed for high net-worth clients, up 44% from 2005.
Money managers are also beginning to realize the danger of climate change and its risk for portfolios, which is further driving interest in SRI. Some of these managers are joining groups such as Investor Network on Climate Risk in order for their concerns to be heard.
“The bottom line is that social investment is alive and well today,” says Smith. “It is seeing spikes in institutional and investor demand, and it is benefiting from new products and issues that are making SRI more dynamic and vibrant than ever.”
For more about SRI, click here to read the July 2007 issue of Benefits Canada.
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