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March 06, 2008

SRI Assets Surge Ahead
    by Anne Moore Odell

New socially responsible investing study reports one dollar out of every nine dollars under professional management is invested responsibly. -- With giant institutional investors leading the way, socially responsible investing (SRI) is growing faster than other types of managed investments, reports the 2007 edition of the Social Investment Forum's Report on Socially Responsible Investing Trends in the United States. While the total of all assets under management grew less than 3% over the last two years, managed SRI assets grew more than 18%.

Visit the
Prospectus Ordering CenterThe Trends report, by lead author Joshua Humphreys of Harvard University, considered assets that are managed using one or more of three main SRI approaches: screening, shareholder advocacy, and community investing. SRI investing represents 11% of the $25.1 trillion in assets under management in the US.

The SIF is the national membership association for the social investment industry. It has produced the Trends Reports biannually since 1995.

Institutional investors and high net worth investors account for the bulk of the SRI assets. Of the $2.71 trillion identified by the Trends report as invested responsibly, over $1.9 trillion of the assets are managed for institutional and high net worth individuals. Embracing their responsibilities and position, institutional investors have become more active in engaging with companies they own stocks in, the report finds.

"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," said SIF Board Chair Cheryl Smith and executive vice president and senior portfolio manager at Trillium Asset Management.

Ms. Smith continued, "Increasingly, money managers are incorporating social and environmental factors into their investing practices, acknowledging the demand for social investing products and services from institutional and individual investors, socially concerned high-net-worth clients, individuals seeking SRI options in their retirement and college-savings plans, and 'mission-driven' institutions including foundations, endowments, labor unions, and faith-based investors."

Tobacco screens still represent the largest applied screen to SRI assets. Divestment from the Sudan has grown significantly over the past two years, and is now one of the top twenty screens in the SRI field.

The report states that 260 funds applied some type of environmental and/or social screen, representing more than $201.8 billion in assets. This report marks the first time exchange-traded funds (ETFs)--with $2.25 billion in assets--were a notable factor.

Open-ended mutual funds continue to account for the lion's share of screened funds with $171.7 billion in total net assets. US investors can chose from 173 screened mutual funds available in 358 different share classes. Other funds employing screening include closed-ended funds, social venture capital private equity funds, and hedge funds.

The Trends report uses the broadest definition of what constitutes a screened fund, which includes funds that may have just one screen, such as tobacco. There are about 100 multi-screened funds that use a broad set of environmental, social and governance (ESG) screens and that are actually promoted as "SRI mutual funds."

A large number of new investment products have been introduced in the SRI field since the 2005 edition of the SIF Trends report, in part, to satisfy consumer demands to address climate change in their portfolios.

"Examples of how issues are driving SRI investments include the fast-growing numbers of institutional investors, fund families, and money managers that are incorporating criteria related to climate change and the crisis in the Sudan into portfolio management and shareholder advocacy," said Alisa Gravitz, SIF board member and executive director of Co-op America.

Although there was a slight decrease in the number of social and environmental shareholder resolutions filed (360 in 2005 to 2007 to 338), the number of resolutions only tells part of the story, as many resolutions are withdrawn after successful dialogues between the companies and shareholders. Further, the average vote received on social and environmental shareholder resolutions increased from 9.8% in 2005 to 13.3% in 2006 to 15.4% in 2007. Support for resolutions on equal employment opportunity policies received the highest level of support, garnering an average of 32.8% in 2007.

"Shareholder resolutions on environmental, social and related corporate governance questions are now enjoying major mainstream acceptance and the vote totals that go with that," said Tim Smith, Walden Asset Management senior vice president and immediate past chair of the SIF, "Part of that is due to widespread investor concerns about such issues as climate change, the Sudan crisis, and CEO compensation," Mr. Smith added.

Of the three SRI strategies, community investment has grown at the fastest pace. Community investment saw a 30% increase over the past two years with community investment institutions (CIIs) controlling $25.8 billion in assets in 2007, up from $19.6 billion in 2005. The Trends report credits this growth partly to the increase in CIIs,

"Community investing remains one of the fast-growing strategies of socially responsible investing," said Lisa Woll, SIF CEO. "The expansion of market-rate opportunities and other industry developments are making it easier for a broad range of investors to participate in the expanding field of community investing."

The Trends report also credits SIF Foundation and Co-op America's "1% or More in Community" campaign, which encourages asset managers and institutions to dedicate 1% or more of their portfolio for community investments. As of the end of 2006, almost 90 SIF members have taken part in the campaign.

The Trends report focuses on SRI in the US. However, the report concludes with a snapshot of global SRI trends. European SRI investors have access to some of the most advanced and varied SRI products in the world. The European Social Investment Forum (Eurosif) reports that in 2006, investors in nine European countries had almost 105 billion in screened funds and nearly 1.21 trillion in assets that use broad SRI strategies.

The Trends report is a very readable and approachable document that is of interest to both newcomers to SRI and to those who have been following SRI trends for years. Along with defining SRI terms, the report offers many sidebars and charts with specific examples of what is happening in the SRI arena.

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