August 01, 2002
Investors Continue to Put Money into SRI Mutual Funds
by William Baue
While U.S. diversified mutual funds are experiencing significant net outflows in response to the
corporate scandals, SRI mutual funds are experiencing net inflows.
In the midst of the current crisis in investor confidence resulting from the wave of corporate
governance scandals, the old-fashioned options of stowing money under the mattress or burying it in
the back yard seem increasingly attractive. However, investors are not abandoning the market
The Social Investment Forum (SIF) announced this week that for the
first half of 2002, there was net inflow of assets to SRI mutual funds. This means that in the
first six months of this year, more money was put into SRI funds than taken out. The SIF made this
conclusion based on analysis of data provided by Lipper, a Reuters-owned firm that tracks 80,000
mutual funds worldwide.
According to SIF calculations, the Lipper data show a 3 percent
net inflow to SRI mutual fund assets between January and June, 2002, and a concurrent 9.5 percent
net outflow from the total assets of U.S. diversified funds. In other words, while investors are
withdrawing money from mainstream mutual funds, they are depositing money into SRI mutual funds.
Lipper data for June, a particularly volatile month that saw the S&P 500 drop by more than 13
percent, throws this phenomenon into sharp focus. SRI mutual funds experienced net inflows of $47
million, while U.S. diversified funds experienced net outflows of almost $13 billion.
"This data appears to confirm that there really is something to the anecdotal reports we are
hearing about the ongoing market scandals spurring new people to join the ranks of socially
responsible investing," said Steve Schueth, spokesperson for the Social Investment Forum and
president of First Affirmative Financial Network. "One might say that the social investment
industry is defying gravity at the moment."
Socially responsible investing applies the
same stringent financial analysis as traditional investing strategies. However, SRI also analyzes
companies' social and environmental performance. While such additional due diligence does not
guarantee the identification of fraudulent corporate accounting, SRI does offer investors a broader
view of their companies.
"The market faces a real crisis of credibility, caused, in part,
by a seemingly endless procession of corporate scandals," said Tim Smith, president of the SIF and
senior vice president of socially responsive investing at Walden Asset Management. "Socially and
environmentally responsible mutual funds use their influence to promote more corporate
responsibility through resolutions, dialogue and encouraging reforms in corporate governance. When
you combine that far sighted leadership with good relative performance, screened funds are an
increasingly attractive alternative for many of the nation's investors."