Environmental and Social Issues Creating Opportunities For Investment Professionals
Looks like being socially responsible doesn’t mean investors must forego higher returns. Now more than ever, investors are taking responsibility for environmental and social issues. Socially responsible investing (SRI) in the U.S. is currently growing at a much faster pace than the broader universe of all investment assets under professional management, according to the latest report from the nonprofit Social Investment Forum (SIF). The report found that, from 2005 to 2007, SRI assets increased more than 18% while all investment assets under management inched up by less than 3%. So, what’s driving the trend? SIF says overall strength in SRI strategies is the result of rising institutional investor interest, growing demand for climate-related renewable energy alternatives, concerns about the Sudan humanitarian crisis, and the emergence of new products.
The soaring appetite for socially responsible investments is creating opportunities for financial advisers. Looking ahead, executive search firm, A.E. Feldman, says SRI appears unlikely to slowdown. The firm says investment professionals should be aware of the growing trend towards socially-responsible investment. In fact, the UK Social Investment Forum, a leading organization on ethical investment, recently launched a training course for financial advisers to help educate them on how to advise clients on ethical investing.
SRI is the selection of stocks or funds based on certain social criteria…in other words, investing with a conscience. And the past few years have seen growth of SRI funds in a range of asset classes, including hedge funds.In the past two years, social investing has surged to $2.71 trillion in total assets under management - that’s up from $2.29 trillion in the 2005, according to Social Investment Forum. The group contends that right now, nearly one out of every nine dollars under professional management in the U.S. is involved in socially responsible investing.
Institutional investors and high net worth individuals account for the majority of SRI assets - $1.9 trillion of the total $2.71 trillion, according to SIF. “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,” says SIF Board Chair and EVP and Senior Portfolio manager at Trillium Asset Management, Cheryl Smith.
As the percentage of professionally managed money involved in SRI grows, screening has emerged as a core strategy. The SIF report states that 260 funds - including mutual funds and exchange-traded funds (ETFs) - applied some type of environmental or social screen. Assets in these funds rose to $201.8 billion in 2007 - a 13% jump over the $179.0 billion in the 201 funds tracked in 2005, according to SIF.
Historically, SRI involves screening out the “bad” stocks investors want to avoid, such as tobacco, firearms and casinos. But the more modern approach being adopted by many fund managers is that there are profits to be made by investing in companies that are helping to find solutions to the world’s problems. The investment strategy is not to simply screen things out, but to seek opportunities that may benefit society at large.
“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,” says SIF’s Smith.
Moreover, SIF says the average level of shareholder support for resolutions on social and environmental issues rose to a record 15.4% in 2007 from 9.8% in 2005 - a staggering 57% increase. Assets in community investing institutions also rose to $24.8 billion in 2007 a nearly 32% jump from 2005.
