Managed SRI assets surpass $3,000,000,000

By Michael Kramer

The Great Recession, currently in its third year, caused many equity investors to either lose nearly a decade of stock market gains or lose faith in the market and move to cash equivalents. Nevertheless, the Social Investment Forum’s recently-released 2010 Report on Socially Responsible Investing Trends in the United States reveals a startling fact: while the overall amount of professionally managed assets invested increased only 3% since 2005, the amount of managed assets in socially responsible investments rose 34% during the same five-year period, to $3.07 trillion. This affirms a long-term trend, as managed SRI assets increased 380% over the past fifteen years, 120% more than assets in conventionally managed investments.


What may come as a surprise even to SRI investors is that one out of every eight dollars under professional management is now engaged in some form of ethical investing. Only three years ago, this rate was one of every eleven dollars. The report illustrates the maturation and expansion of the SRI industry, with the number of SRI funds nearly doubling in only three years, from 260 to 493, as values-based investing continued to gain in popularity amidst the problematic ethical and mismanagement issues on Wall Street. In addition, the value of assets in SRI-oriented Exchange-Traded Funds increased over 200% since 2007.

Negative Screening Still the Foundation

Recent years have seen many innovations designed to reshape the criteria we use to define social responsibility, aiming to proactively channel investment into more “sustainable” companies that integrate a wide range of environmental, social, and governance issues into their analytical methodology. Nevertheless, the Trends Report revealed that the most popular investment approach continues to be negative screening to omit companies engaged in tobacco, alcohol, gambling, weapons, the Sudan, and poor environmental performance. These traditional practices don’t garner media attention as much as they once did, but they still form the foundation of the industry, and serve as the strong taproot of values-based investing.

Thus, most SRI assets – $2.5 trillion – are linked to portfolio screening for environmental, social, and governance factors. Meanwhile, assets dedicated exclusively to shareholder advocacy now total $1.5 trillion, nearly double the amount from 2007. Assets placed in community development financial institutions now total nearly $42 billion, a 60% increased over the past three years.

In addition, there are now over 175 alternative investment vehicles, such as hedge funds, real estate funds, and venture capital and private equity funds. This segment of the SRI industry has grown over 600% in only three years, by far the largest increase of any category. A boom in green building across the country has spurred the creation of thirty Responsible Property Investment (RPI) funds, one of the more significant developments of the past few years. A broadly defined niche, RPI covers a wide range of purposes, approaches, and vehicles that address brownfield redevelopment, urban infill and regeneration, energy efficiency, smart growth and transit-oriented development, fair labor practices, and affordable and workforce housing.

Shareholder Advocacy on the Rise

In the shareholder advocacy arena, over 1500 social and environmental resolutions were filed by shareholders during the past four proxy seasons, and while many were withdrawn as a result of management’s voluntary support, about half the resolutions were voted on, and nearly one-third of them received more than 30% favorable votes by shareholders. This is significant because historically, shareholders vote with management – which usually opposes shareholder resolutions on principle. The near doubling of the rate of shareholder support for SRI resolutions suggests a stronger willingness to hold management accountable for practices that affect share value. The most popular issue over the past three years has been disclosure of political contributions: nearly 250 shareholder resolutions were filed on this issue during this period. In second place were climate change and other environment-related resolutions surrounding pollution prevention and sustainability reporting. Equal employment, animal welfare, human rights, health care reform, and global labor standards each also saw at least fifty resolutions. The areas which have received the highest “yes” votes among shareholders since 2007 pertain to equal employment opportunity and sustainability reporting, with political contributions disclosure not far behind.

In the corporate governance arena, resolutions to allow shareholders an advisory say on executive pay were the most widely filed, and in general such resolutions received support at the 40% level. Resolutions that require majority shareholder approval of individual board members received support at nearly the 60% level, while initiatives to separate the powers of corporate CEO and board chair, as well as to increase board diversity, received lesser support.

Community Investing Almost Doubles

Community investing continues to grow in popularity, nearly doubling its assets in three years to $42 billion. The majority of the assets reside within community banks (41%), credit unions (27%), and loan funds (27%), though community development venture capital funds saw a 67% increase in the past four years. As we know, deposits in these institutions support the construction and ownership of affordable housing, development of small businesses and micro-enterprises, community services such as child care, education and healthcare, creation of living-wage jobs and asset-building education and assistance for low-income populations, as well as funding businesses and organizations in the fields of sustainable development, resource conservation, and environmentally beneficial products and services.

Strikingly, the default rate for customers at community investment institutions during the economic downturn was significantly lower than at conventional FDIC-insured institutions, testament to their history of providing appropriate and non-predatory financial services, including foreclosure prevention counseling.

Finally, the growth of domestic assets in SRI is consistent with the global trend. In the thirteen major countries of Europe, SRI assets jumped 87% in three years to five trillion Euros, while Canada saw a 21% increase to CDN $610 billion. The Austral-Asian rim nations (China, India, Korea, Indonesia, Japan, Malaysia, Singapore, Thailand, and Vietnam) currently maintain over $100 billion in SRI assets, while there are now over 400 SRI funds in the region. From developing nations, all the way to your own portfolio, making money while making a difference is clearly on the rise.

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Michael Kramer

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