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August 10, 2009

Responsible Investing Poised to Become Mainstream
    by Robert Kropp

Report by Robeco Investment Management and Booz & Company expects responsible investing to grow to as much as 20% of total assets under management by 2015. -- Citing the reduction of carbon emissions and the growth of clean technologies as primary drivers, a recently published white paper by Robeco Investment Management and Booz & Company estimates that the Responsible Investment (RI) market will "become mainstream within asset management by 2015, reaching between 15%-20% of total global Assets Under Management ($26.5 trillion) and a total revenue of approximately $53 billion."

The white paper, entitled Responsibl e Investing: A Paradigm Shift from Niche to Mainstream, reports that by the end of 2007, global RI assets under management had reached $5 trillion, or 7% of total assets under management. Global RI investment has been growing at a rate of 22% annually since 2003, according to the report. A major driving force for the growth of RI has been the Principles for Responsible Investment (PRI).

Because of increasing awareness among companies of their Corporate Social Responsibility (CSR), increasing prices of energy and raw materials, growing media attention to environmental, social, and governance (ESG) issues, and ongoing changes in legislation, the report estimates that "RI is expected to grow by 25% per annum over the next few years and become mainstream by 2015 at the latest. The RI penetration is expected to reach between 15 to 20% of total assets under management or around $26.5 trillion. Should the RI market enter proliferation phase, global RI growth rates could grow to 30% per year."

The report notes that at present, pension funds and institutional investors are the primary clients for RI investments. However, it anticipates a significant growth among retail investors, who will be drawn to RI by their concerns regarding clean energy, climate change, and water. According to the report, "Today, the RI market is characterized by various niche players. By 2015, niche players are likely to be taken over by global players or grow themselves to become sizeable specialists."

The report defines RI as an investment strategy utilizing a broad range of criteria, including negative screening, ESG criteria, and publication of CSR reports by companies. While many of the criteria of sustainable investing are included, the practice by sustainable investors of investing in the Best in Class among companies engaged in such activities as alcohol, tobacco, and weaponry, is not.

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