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November 10, 2010
Growth in Sustainable Assets Outpaces Mainstream
    by Robert Kropp

The 2010 Trends Report by the Social Investment Forum finds that sustainable assets have grown by 13% since 2007, compared to less than one percent by mainstream assets.


Since 1995, the Social Investment Forum (SIF) has been producing trends reports to measure the growth of socially responsible, or sustainable, investing (SRI) in the US. The impact of these reports is such that few academic studies on sustainable investing do not refer to them.

Yesterday, SIF announced the publication of its
2010 Trends Report, an eagerly awaited event in that it occurs in the aftermath of the financial crisis and a lingering economic recession. While concerns have been voiced that consideration of environmental, social, and corporate governance (ESG) issues in investment decision-making could suffer as investors act more conservatively in response to conditions, the report clearly indicates that this is not the case.

The growing acceptance of the primary strains of sustainable investment—the consideration of ESG factors, shareowner advocacy, and community investment—reflects what SIF has found in its trends reports since 1995, when, according to Lisa Woll, CEO of SIF, "SRI was still considered by some commentators as a niche that would not thrive in the long run."

Speaking at a
press conference, Woll said, "Socially responsible and sustainable investment assets in the US have topped $3 trillion, nearly one out of every eight dollars under professional management."

The report details the growth of sustainable assets over the years. By 2010, professionally managed assets that follow sustainable investment strategies increased by more than 380% from $639 billion in 1995. "Since 2005," the report states, "SRI assets have increased more than 34 percent while the broader universe of professionally managed assets has increased only 3 percent."

"From the start of 2007 to the opening of 2010," the report continues, "A three-year period when broad market indices such as the S&P 500 declined and the broader universe of professionally managed assets increased less than 1 percent, assets involved in sustainable and socially responsible investing increased more than 13 percent."

At the press conference, Trends report co-author Joshua Humphreys, Director of the Center for Social Philanthropy at
Tellus Institute, said, "Since 1995, when the Social Investment Forum first identified around $639 billion in SRI strategies, SRI assets have grown at a compound annual rate of 11%, 1.9% faster that the compound growth of the wider universe of assets under professional management."

The report found that institutional investors continue to dominate the sustainable investment landscape, with $2.3 trillion in assets under management. Yet, the involvement of retail investors has increased as well, as the total net assets of investment vehicles incorporating ESG factors increased from $202 billion in 2007 to $569 billion in 2010.

The retail investment vehicles analyzed in the report include mutual funds, exchange-traded funds (ETFs), and closed-end funds. While ETFs, which are open-ended funds that, unlike mutual funds, can be traded at any time while the host stock market is open, accounted for only one percent of the sustainable assets identified by the report, their assets have grown 225% since 2007.

Alternative investment vehicles that incorporate ESG criteria, such as hedge funds, social venture capital funds, private equity funds, and responsible property funds, also grew in number at a remarkable rate, increasing from 46 in 2007 to 177. The assets of alternative investment vehicles grew by 613% during the period.

Shareowner advocacy and community investing are two key activities of sustainable investors, and the report noted growth in both areas. In 2006, shareowner resolutions addressing ESG issues numbered 367, submitted by institutional investors controlling $739 billion in assets. By the end of 2009, more than 200 institutions and investment management firms, with $1.5 trillion in assets, had submitted proposals. Furthermore, votes in favor of certain proposals increase dramatically; the percentage of votes for environmental issues more than doubled, while votes in favor of proposals addressing financial institutions more than tripled.

Community investing in underserved communities increased as well, from $25 billion in 2007 to $41.7 billion in 2010. SIF identified healthy growth in all four categories of community investing institutions that it has tracked since 1995: banks, credit unions, loan funds, and venture capital funds.

The report identifies a number of drivers of the increase in responsible investment. Citing client demand, money managers are increasingly incorporating ESG criteria. Both institutional investors and money managers, through targeted divestment or active engagement, have made investment issues addressing the human rights crisis in Sudan the single most prevalent ESG issue, displacing tobacco.

Investment products with environmental themes, legislative and regulatory developments, and the growth of investor networks are also cited as reasons for the growth in sustainable investing.

At the press conference, Humphreys noted that the report does not measure the performance of sustainable funds. However, mutual fund performance can be tracked by means of SIF's
Mutual Fund Performance Chart, as well as other sites such as the Mutual Funds Center operated by SocialFunds.com.

The 2010 Trends report concluded with a note on the conservative bias of its research, suggesting that if anything the amount of sustainable assets under management may be even higher.

 

 
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