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Report: Socially Responsible Investing Assets in US Top $3 Trillion; Nearly 1 Out of Every 8 Dollars Under Professional Management
SRI Assets Up 13 Percent in Current Economic Downturn, While Overall Assets Increased Less Than 1 Percent; Several Factors Driving Current and Expected Future SRI Growth.
WASHINGTON--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 new 2010 edition of the Social Investment Forum Foundation's Report on Socially Responsible Investing Trends in the United States.
Key report findings include the following:
• The pool of assets engaged in SRI strategies – the use of environmental, social and governance (ESG) criteria, shareholder advocacy and community investing -- 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.
• Since 2005, SRI assets have increased more than 34 percent while the broader universe of professionally managed assets has increased only 3 percent. 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 percent, assets involved in sustainable and socially responsible investing increased more than 13 percent (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 percent 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 percent since the last SIF study conducted in 2007—from 260 to 493—and their assets increased 182 percent 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 sustainable 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.”
Social Investment Forum Board Chair Cheryl Smith, PhD, CFA, president and senior portfolio manager, Trillium Asset Management Corp., said: “During the last three years of prolonged financial and economic turmoil, investors voted with their dollars, showing that they understand the value of incorporating environmental, social, and governance factors in the investment process. Over the three years, investors increased the percentage of their assets managed with socially responsible and sustainable investment strategies. Shareholder advocacy strategies increased in importance, as mainstream investors increasingly joined with SRI investors to support and advocate for strong corporate governance and environmental sustainability. Investors increased their commitment to community investing institutions by 62 percent, as the needs of communities underserved by mainstream banks became increasingly obvious.”
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 percent since 2007, faster than any other segment of ESG vehicles, while their assets increased 613 percent.
• 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 percent 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 percent of the total assets of all ESG investment vehicles, their assets have grown 225 percent 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.
METHODOLOGY
The 2010 Trends report has 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.
The Social Investment Forum Foundation has issued periodic Trends reports on the socially responsible and sustainable investment market since 1995.
ABOUT THE SOCIAL INVESTMENT FORUM FOUNDATION AND SOCIAL INVESTMENT FORUM
The Social Investment Forum Foundation is a nonprofit 501(c)(3) organization. The objective and purpose of the Foundation is to support the activities and purpose of the Social Investment Forum, its sole member, by assuming the responsibilities for, and the management of, certain educational, research and programmatic activities.
The Social Investment Forum is the US membership association for professionals, firms, institutions and organizations engaged in socially responsible and sustainable investing (SRI). SIF and its members advance investment practices that consider environmental, social and corporate governance criteria to generate long-term competitive financial returns and positive societal impact. SIF's members include investment management and advisory firms, mutual fund companies, research firms, financial planners and advisors, broker-dealers, banks, credit unions, community development organizations, non-profit associations, and pension funds, foundations and other asset owners.
The vision of both organizations is a world in which investment capital helps build a sustainable and equitable economy.
The 2010 Report on Socially Responsible Investing Trends in the United States was made possible by support from the following organizations:
Foundations
The Rockefeller Foundation
www.rockefellerfoundation.org
Wallace Global Fund
www.wgf.org
Benefactors
Bloomberg
www.bloomberg.com
TIAA-CREF
www.tcasset.com
Lead Sponsors
MSCI
www.riskmetrics.com/sustainability
Neuberger Berman
www.nb.com
General Sponsors
Calvert Investments
www.calvert.com
Christian Brothers Investment Services
www.cbisonline.com
Clearbridge Advisors
www.clearbridgeadvisors.com
Legg Mason Investment Counsel
www.lmicus.com/sri
Sentinel Investments
www.sentinelinvestments.com
Towers Watson Investment Services
www.towerswatson.com
Trillium Asset Management
www.trilliuminvest.com
United Methodist Church General Board of Pension and Health Benefits
www.gbophb.org/sri_funds
Walden Asset Management
www.waldenassetgmt.com
EDITOR'S NOTE: Copies of the 2010 Trends report will be available to journalists upon request. The executive summary of 2010 Trends report is available at no cost.
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