The US membership association for professionals, firms, institutions and organizations engaged in sustainable and responsible investing.

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SRI Basics


What is sustainable and responsible investing?

Sustainable and responsible investing (SRI) is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.
 
SRI Assets in the United States: According to the US SIF Foundation’s 2012 Report on Sustainable and Responsible Investing Trends in the United States, as of year-end 2011, more than one out of every nine dollars under professional management in the United States—$3.74 trillion or more—was invested according to SRI strategies. The next Trends report on SRI assets will be published in the fourth quarter of 2014.
  
Motivations: There are several motivations for sustainable and responsible investing, including personal values and goals, institutional mission, and the demands of clients, constituents or plan participants. Sustainable investors aim for strong financial performance, but also believe that these investments should be used to contribute to advancements in social, environmental and governance practices. They may actively seek out investments—such as community development loan funds or clean tech portfolios—that are likely to provide important societal or environmental benefits. Some investors embrace SRI strategies to manage risk and fulfill fiduciary duties; they review ESG criteria to assess the quality of management and the likely resilience of their portfolio companies in dealing with future challenges. Some are seeking financial outperformance over the long term; a growing body of academic research shows a strong link between ESG and financial performance.
 
Terminology: Just as there is no single approach to SRI, there is no single term to describe it. Depending on their emphasis, investors use such labels as: “community investing,” “ethical investing,” “green investing,” “impact investing,” “mission-related investing,” “responsible investing,” “socially responsible investing,” “sustainable investing” and “values-based investing,” among others.

 

What strategies do sustainable and responsible investors use?

Traditionally, responsible investors have focused on one or both of two strategies. The first is ESG incorporation, the consideration of environmental, community, other societal and corporate governance (ESG) criteria in investment analysis and portfolio construction across a range of asset classes. An important segment, community investing, seeks explicitly to finance projects or institutions that will serve poor and underserved communities in the United States and overseas. The second strategy, for those with shares in publicly traded companies, is filing shareholder resolutions and practicing other forms of shareholder engagement. Sustainable investing strategies work together to encourage responsible business practices and to allocate capital for social and environmental benefit across the economy.
 
How large is the sustainable and responsible investing marketplace?
 
The US SIF Foundation's Report on Sustainable and Responsible Investing Trends in the United States identified $3.74 trillion in total assets under management at the end of 2011 using one or more sustainable and responsible investing strategies.
 

Sustainable and Responsible Investing
in the United States in 2012: $3.74 trillion

 

Sustainable and Responsible Investing Trends in the United States in 2012: $3.74 trillion
 

From 2010 to 2012, sustainable and responsible investing enjoyed a growth rate of more than 22 percent, increasing from $3.07 trillion in 2010. More than one out of every nine dollars under professional management in the United States today—11% of the $33.3 trillion in total assets under management tracked by Thomson Reuters Nelson—is involved in sustainable and responsible investing.
 
Who are sustainable and responsible investors?
 
Sustainable and responsible investors comprise individuals, including average retail investors to very high net worth individuals and family offices, as well as institutions, such as universities, foundations, pension funds, nonprofit organizations and religious institutions. There are hundreds of investment management firms that offer sustainable and responsible investing funds and vehicles for these investors.
 
Practitioners of sustainable and responsible investing can be found throughout the United States. Examples include:


  • Individuals who invest—as part of their savings or retirement plans—in mutual funds that specialize in seeking companies with good labor and environmental practices.
  • Credit unions and community development banks that have a specific mission of serving low- and middle-income communities.
  • Hospitals and medical schools that refuse to invest in tobacco companies.
  • Foundations that support community development loan funds and other high social impact investments in line with their missions.
  • Religious institutions that file shareholder resolutions to urge companies in their portfolios to meet strong ethical and governance standards.
  • Venture capitalists that identify and develop companies that produce environmental services, create jobs in low-income communities or provide other societal benefits.
  • Responsible property funds that help develop or retrofit residential and commercial buildings to high energy efficiency standards.
  • Public pension plan officials who have encouraged companies in which they invest to reduce their greenhouse gas emissions and to factor climate change into their strategic planning.

How many SRI mutual funds are there?

As of year-end 2011, there were 333 mutual fund products in the United States that considered environmental, social, or corporate governance (ESG) criteria, with assets of $640.5 billion. By contrast, there were just 55 SRI funds in 1995 with $12 billion in assets. 
 
Find member sustainable and responsible mutual funds in our Mutual Fund Performance Chart
 
What are the fastest growing areas of sustainable and responsible investing?
 
Alternative investments have become one of the most dynamic segments within the ESG investing space. Alternative investment funds include social venture capital, double or triple bottom line private equity, hedge funds and property funds. The US SIF Foundation identified an estimated $132 billion in capital under the management of 301 alternative investment funds at the start of 2012, up dramatically from the $37.8 billion it identified in 177 funds just two years earlier.
 

ESG Assets under Management Identified by the US SIF Foundation (Billions of USD)
 
 
Close behind in the rate of growth over the same two-year period were the assets of mutual funds identified by the US SIF Foundation that consider ESG criteria. The number of such funds grew from 250 to 333, and their collective assets more than doubled—from $316 billion to $641 billion. 
 
The assets in community investing institutions such as community development banks, credit unions and loan funds also expanded significantly—by 47 percent—from 2010 to 2012. A major part of the growth can be explained by the increase in the number of banks—from 62 to 88—that gained certification from the US CDFI Fund as community development financial institutions (CDFI). Additionally, community development credit unions won new members and accounts over this period, in part because of “Move Your Money” campaigns, created to motivate investors to move money from large financial institutions tarnished by the recent financial crisis. The number of community development loan funds certified as CDFIs also grew over this two-year period.
 
How do SRI funds perform?
 
Sustainable and responsible investing (SRI) spans a wide and growing range of products and asset classes, embracing not only public equity investments (stocks), but also cash, fixed income and alternative investments, such as private equity, venture capital and real estate. Sustainable and responsible investors, like conventional investors, seek a competitive financial return on their investments.
 
Several research studies have demonstrated that companies with strong corporate social responsibility policies and practices are sound investments. Studies with such findings have come from Deutsche Bank Group Climate Change Advisors, GMI Ratings, Mercer, and the United National Environment Programme Finance Initiative, among others. For example, a 2012 study by Deutsche Bank Group Climate Change Advisors found that incorporating environment, social and governance (ESG) data in investment analysis is “correlated with superior risk-adjusted returns at a securities level.”
 
Learn more about the competitive performance of SRI.  

 
What is Shareholder Engagement?
 
Owning shares in a company gives investors a channel through which to raise environmental, social and corporate governance issues of concern. By filing or co-filing advisory shareholder resolutions at US companies, which may proceed to a vote by all shareholders in the company, active shareholders bring important issues to the attention of company management, often winning media attention and educating the public. Moreover, resolutions need not come to a vote to be effective. The process of filing often prompts productive discussion and agreements between the filers and management that enable the filers to withdraw their resolutions.
 
From 2010 through the first half of 2012, more than 200 institutional investors and money managers collectively controlling a total of at least $1.5 trillion in assets filed or co-filed shareholder resolutions on ESG issues. Investors filed 402 resolutions relating to environmental, social and key governance issues for the 2013 proxy season, compared with 393 for 2012. Included in this group were resolutions asking firms for better disclosure and oversight of their political contributions and activities. Recent social and environmental resolutions have addressed equal employment opportunity, climate change, human rights and sustainability reporting. In addition, investors have filed resolutions questioning companies on their governance structures and practices, particularly those involving board composition, executive pay and responsiveness to shareholders. In recent years, these proposals have been gaining traction, and frequently receive majority support.
 
In addition to filing or co-filing shareholder resolutions, investors can also actively vote their proxies, engage in dialogue with corporate management or join shareholder coalitions as a means to encourage companies to improve their environmental, social and corporate governance practices. In addition, investors can participate in public policy initiatives, working with government regulatory agencies, and testify and report on ESG investment issues to Congress. 
 
A few of the many examples of how shareholder resolutions make a difference can be found here. To learn more about the impact that sustainable and responsible investors have had on companies, the investment industry and public policy, see The Impact of Sustainable and Responsible Investment.