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December 17, 2007
Socially Responsible Investing Branches Out Over Asset Classes
    by Anne Moore Odell

A handbook published by Boston College's Institute for Responsible Investment outlines how managers can diversify socially responsible investments.


Institutional and high net worth investors have many different options for placing their money in socially responsible investments, outside of just buying screened stocks in publicly traded companies. A handbook recently published by Boston College's Institute for Responsible Investment (IRI) helps mission-driven organizations to make investments that have positive societal ramifications across seven different asset classes.

"The Handbook on Responsible Investment Across Asset Classes," written by David Wood and Belinda Hoff, was funded by the F.B. Heron Foundation in collaboration with Eurosif and the Social Investment Forum. It provides a broad overview on how foundations, pension funds, mutual funds and others can achieve a double-bottom line of increasing financial wealth while supporting social goals.

The Institute for Responsible Investment (IRI) is affiliated with the Boston College Center for Corporate Citizenship and funded in part by the Brooks Family Foundation. According to its web site, it "works with investors, corporations, public sector organizations, and research institutes to coordinate thinking and actions around issues of strategic importance to long-term wealth creation for shareholders and society."

David Wood, Director of the IRI explained the Handbook's goal "was to examine how responsible investment, understood as investment that combines rigorous financial analysis with the incorporation of environmental, social, and governance criteria into the investment decision-making process, might be applied across asset classes."

Wood sees an increase in responsible investing and evidence that the field may grow substantially in coming years. He separates SRI investors as two broad groups: investors who think responsible investment offers tools for long-term success by identifying good performing companies, and big trends, for example, climate risk; and investors with a social mission who increasingly believe there are opportunities for risk-adjusted market rates of return that also advance important social and/or environmental goals.

The Handbook is divided into seven chapters, each exploring an asset class: cash equivalents, public equities, fixed-income, real estate, private equity, hedge funds, and commodities.

Each chapter outlines what a responsible investment strategy for the asset class might look like and how investors can become actively engaged within the context of the specific asset class.

"We drew on interviews with practitioners, and the many and various publications listed in the further reading section," said Wood. "The aim was to gather together current thinking in each asset class into one place, highlighting the different types of opportunities in each asset class, and the different ways that the discipline of responsible investment applies across the spectrum of asset classes."

The Handbook is designed for both newcomers to socially responsible investing and practitioners looking at new asset classes. Another use for the Handbook, Wood suggests, is to help frame discussions between asset owners, managers, and consultants who are putting together responsible investment strategies across portfolios.

One of the strengths of the Handbook is the real world examples it provides in each asset class. The examples also include web-addresses for the organizations named.

Although the Handbook has an informative chapter on public equities, a.k.a. stocks and mutual funds, the chapters focused on the lesser-known assets for socially responsible investors are especially enlightening.

Wood points to the work of the Institute for Responsible Investment as part of an active project in real estate. There are a number of asset owners, managers, and developers who take into account double- and triple-bottom line returns who are not typically associated with the SRI movement.

"There's a lot in real estate that offers tangible impact, that creates real opportunities for returns, and that shows signs of growing into a substantial field of 'responsible property investing,'" said Wood.

In the fixed-income or cash equivalents asset class, the Handbook directs the reader to how the community investment movement is pioneering ways to create public goods while achieving market rates of return. The cash equivalents class, aka the bank sector, is also helping develop environmentally focused products.

Other asset classes, for example hedge funds, are in the early stages of developing responsible investment strategies. The commodities asset class is full of possibilities for socially responsible investors to get involved and help shape the future of the commodities market.

"In all cases, we think the key insight of responsible investment -- that there are opportunities for market-rate investments that also create some social and/or environmental good -- are potentially applicable," concluded Wood. "We also think that different asset classes lend themselves to different varieties of triple-bottom line returns -- and require different sorts of expertise to enhance returns and impact."

The Handbook ends on the role of socially responsible investing in emerging markets, which its authors define as referring to "those countries and regions with a relatively low median per capita income level." Although emerging markets are not an asset class, emerging markets do offer many opportunities for responsible investors to generate positive environmental, social and governance changes with their investments.


 

 
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