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January 26, 2006
Social Investment Forum Trends Report Tracks Rises and Falls of Socially Responsible Investing
    by William Baue

The 2005 report documents increases since 2003 in assets overall in SRI, in SRI mutual funds, and in shareholder advocacy, but decreases in overall screened assets and in screened separate accounts.

Is socially responsible investing (SRI) growing, shrinking, or holding its own? These are the questions on the minds of readers of the 2005 Trends Report from the Social Investment Forum (SIF), which released the most recent edition of this biennial study earlier this week. The answer is: all three, depending on how you slice the data.

The overall amount of money (or assets under management, AUM) invested in one or more of the three main SRI strategies (screening, shareholder advocacy, and community investing) grew to $2.29 trillion in 2005 from $2.16 trillion in 2003. However, this represents a decline from the peak of $2.32 trillion in 2001.

Nearly one in ten dollars is now invested in SRI (9.4 percent of the $24.4 trillion in total assets under professional management according to the Directory of Investment Managers from Nelson Information), but this ratio is down from one in nine dollars in 2003. Looking at the long-term, the 258 percent growth in overall SRI assets during the decade since the first SIF Trends Report in 1995 has slightly outpaced the 249 percent rise in the overall market, a distinction heightened when isolating the role of mutual funds.

"It's clear that the combination of competitive performance, screening, and advocacy on behalf of their investors offered by SRI mutual funds are making them an increasingly attractive option for a wide range of investors," said Alisa Gravitz, vice president of SIF and executive director of its sister organization, Co-op America. "SRI mutual funds have grown from $12 billion in 1995 to $178.7 billion in 2005, far outpacing the overall growth of mutual funds in the US."

While the report notes that this represents a 15-fold increase for SRI mutual funds, it does not provide comparative statistics for the growth of assets in the overall mutual fund universe over the past decade. It does discuss dynamics in the application of screens on mutual funds and on the other component of screened assets, separate accounts managed for individuals and institutional investors.

"Based on the survey of the entire universe of 201 socially screened funds in the US, the Social Investment Forum has found that tobacco remains the most commonly applied social screen, affecting the investment management of 162 funds with $159 billion in total net assets, or more than 88 percent of the total assets in the socially screened universe," states the report. "Since 2003, the total assets in socially screened separate accounts declined from $1.99 trillion [to $1.51 trillion in 2005], as single-issue screening on issues such as tobacco waned and institutional investors embraced their roles as staunch shareholder advocates."

Indeed, the number of social and environmental shareholder resolutions filed increased from 299 in 2003 to 348 in 2005. Assets managed using the second SRI strategy of shareholder advocacy also rose from $448 billion in 2003 to $703 billion in 2005 (though this represents a decrease from the high of $922 billion in 1999.)

Of course many social investors practice both screening and shareholder advocacy, so SIF subtracts this overlap from the total to avoid double-counting. This overlap decreased almost fourfold from $441 billion in 2003 to $117 billion in 2005, demonstrating that social investors migrated in large numbers from employing these dual SRI strategies to using shareholder advocacy in isolation.

Finally, the report documented the continuing maturation of community investment.

"Community investing experienced tremendous growth from 2003 to 2005," said Jean Pogge, vice chair of SIF's Community Investing Program and senior vice president of Mission-Based Deposits for ShoreBank in Chicago. "In total, community investing expanded by two-fifths over the period."

"And assets in community investing expanded even more dramatically over the past ten years," she added. "In 1995, community investing assets totaled $4 billion, and have since grown almost 400 percent to the $19.6 billion found in this report."

The report concludes noting the increasing globalization of SRI, with increases in assets under management in Canada, Europe, Australia, Japan, and emerging markets. The report's departing note explains methodology, pointing out developments in methodological sophistication combined with the inherent limitations of comprehensive data collection on SRI result in a conservative bias toward undercounting of SRI assets.


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