Despite the recent economic downturn, sustainable and socially responsible investing (SRI) in the United States is continuing to grow at a faster pace than the total universe of investment assets under professional management, according to the trade association, Social Investment Forum.
The 2010 edition of the Social Investment Forum Foundation’s Report on Socially Responsible Investing Trends in the United States finds that, since 2005, SRI assets have increased more than 34% while the broader universe of professionally managed assets has increased only 3%.
SRI investment strategies are definined by the use of environmental, social and governance (ESG) criteria, shareholder advocacy and community investing.
The report says the pool of assets engaged in SRI strategies has grown more rapidly than the overall investment universe due to such factors as net inflows into existing SRI products, the development of new SRI products, and the adoption of SRI strategies by managers and institutions not previously involved in the field.
Other key findings include:
- From the start of 2007 to the end of 2009, a three-year period when broad market indices such as the S&P 500 declined and the broader universe of professionally managed assets increased less than 1%, assets involved in sustainable and socially responsible investing increased more than 13% (from $2.71 trillion to $3.07 trillion).
- Nearly one out of every eight dollars under professional management in the United States today--12.2% of the $25.2 trillion in total assets under management tracked by Thomson Reuters Nelson--is involved in some strategy of socially responsible and sustainable investing.
The total value of assets managed under policies that explicitly incorporate environmental, social and governance criteria into investment analysis and portfolio construction are valued at $2.51 trillion. Of these ESG assets, $691.9 billion were identified within specific investment vehicles managed by money managers, while at least $2.03 trillion were identified as owned or administered by institutional investors.
Of the institutional ESG assets, $206.3 billion were managed through investment vehicles captured in research on money managers. The assets and numbers of fund vehicles tracked as incorporating ESG criteria rose 90% since the last SIF study conducted in 2007--from 260 to 493--and their assets increased 182% from $202 billion to $569 billion.
Social Investment Forum CEO Lisa Woll said: “Socially responsible and sustainable investing emerged from the recent financial crisis doing better than the overall market in terms of holding onto assets and attracting new investments. What is significant about this strong growth is that it encompasses both retail investors, including SRI mutual funds, and institutional investors, who hold the majority of SRI investments. We have also seen robust expansion of the strategies of shareholder advocacy and community investing. All of these developments show that the key principles of socially responsible and green investing are being more widely embraced. All signs point to more investors looking for investments that support good governance and greater transparency and disclosure on ESG issues.”
Trends report co-author Joshua Humphreys, PhD, Director, Center for Social Philanthropy, Tellus Institute, said: "SRI is a ray of hope across an otherwise dreary investment landscape. Increasing numbers of investors are moving their money and demanding more ‘responsible returns’ from their investments, by taking environmental, social and governance issues into account. Investment consultants and asset managers are rising to this growing demand from individuals and institutions, and we see impressive growth in new sustainable investment vehicles and strategies across asset classes, from ETFs to alternative investments in venture capital, ‘double-bottom-line’ private equity and responsible property funds that promote environmental sustainability and positive community impact.”
Other Key Findings
Institutional investors: With $2.3 trillion in assets involved in SRI strategies, institutional investors dominate the SRI universe documented in this report. Of this overall universe of institutional assets engaged in SRI strategies: $2.03 trillion incorporate ESG factors into investment analysis and portfolio selection; $858.8 billion is controlled by institutions that file or co-file shareholder resolutions on ESG issues; and $586.2 billion were identified as involved in multiple strategies of ESG incorporation, shareholder advocacy or community investing.
Alternative investment funds: The Trends report identifies 177 alternative investment vehicles that incorporated ESG criteria with $37.8 billion in total assets. Alternative investment vehicles include hedge funds, social venture capital and double- and triple-bottom-line private equity funds and responsible property funds, typically organized as unregistered limited partnerships or limited liability companies and available only to accredited institutional and high-net-worth investors. The number of alternative investment vehicles incorporating ESG criteria increased 285% since 2007, faster than any other segment of ESG vehicles, while their assets increased 613%.
Mutual funds: The largest share of funds that incorporate ESG factors are mutual funds, with $316.1 billion in total assets invested in 250 different funds. Of these ESG mutual funds, 27--with $176.9 billion in assets--underlay annuity products.
Shareholder advocacy: A wide array of investors now files or co-files shareholder resolutions at US companies on ESG issues, and hundreds of these proposals come to votes each year. From 2008 through 2010, more than 200 institutions--including public funds, labor funds, religious investors and foundations--and investment management firms filed or co-filed proposals. These institutions and money managers collectively controlled $1.5 trillion in assets at the end of 2009.
Community investing: Assets in community investing institutions rose more than 60% from $25.0 billion in 2007 to $41.7 billion at the start of 2010, reflecting healthy growth in all four categories of community investing institutions that the Social Investment Forum Foundation has tracked since 1999: community development banks, community development credit unions, community development loan funds and community development venture capital funds.
Exchange-traded funds: Twenty-six ETFs with $4.0 billion in total assets were identified as incorporating ESG criteria. Although ETFs accounted for only 1% of the total assets of all ESG investment vehicles, their assets have grown 225% since 2007, the fastest of all registered investment vehicles.
Separate account vehicles: Among separate account managers, 232 distinctive separate-account vehicles or strategies, with $122.4 billion in assets, incorporated ESG factors into investment analysis.
The 2010 Trends report identified $3.07 trillion in total assets under professional management in the United States using at least one of three socially responsible investing strategies:
- The incorporation of environmental, social and governance (ESG) factors into investment analysis and portfolio construction;
- The filing or co-filing of shareholder resolutions on ESG issues; and
- Deposits or investments in banks, credit unions, venture capital funds and loan funds that have a specific mission of community investing.