SRI Basics: Part Two

How large is the sustainable and responsible investing marketplace? How many assets are involved?

78160648The US SIF Foundation’s 2012 Report on Sustainable and Responsible Investing Trends in the United States identified $3.74 trillion in total assets under management using one or more sustainable and responsible investing strategies. From 2010 to 2012, sustainable and responsible investing enjoyed a growth rate of more than 22 percent, increasing from $3.07 trillion in 2010. More than one out of every nine dollars under professional management in the United States today—11% of the $33.3 trillion in total assets under management tracked by Thomson Reuters Nelson—is involved in sustainable and responsible investing.

Who are sustainable and responsible investors?

Sustainable and responsible investors comprise individuals, including average investors to very high net worth individuals and family offices, as well as institutions, such as universities, hospitals, foundations, public and private pension funds, nonprofit organizations and religious institutions.  In addition, there are hundreds of investment management firms that offer sustainable and responsible investing funds and vehicles.

Practitioners of sustainable and responsible investing can be found throughout the United States. Their numbers include (to name just a few examples):

  • Individuals who invest—as part of their college savings or retirement plans—in mutual funds that specialize in seeking companies with good labor and environmental practices.
  • Banks and credit unions with a specific mission of serving low- and middle-income communities.
  • Hospitals and medical schools that refuse to invest in tobacco companies.
  • Foundations that support community development loan funds and other high social impact investments in line with their missions.
  • Religious institutions that file shareholder resolutions to urge companies in their portfolios to meet strong ethical and governance standards.
  • Venture capitalists that identify and develop companies that produce environmental services, create jobs in low-income communities or provide other societal benefits.
  • Responsible property funds that help develop or retrofit residential and commercial buildings to high energy efficiency standards.
  • Public pension plan officials who have encouraged companies in which they invest to reduce their greenhouse gas emissions and to factor climate change into their strategic planning.

How many SRI funds are there?

As of 2012, there were 333 mutual fund products in the United States that consider environmental, social, or corporate governance (ESG) criteria, with assets of $640.5 billion. By contrast, there were just 55 SRI funds in 1995 with $12 billion in assets

What are the fastest growing areas of sustainable and responsible investing?

Alternative investments have become one of the most dynamic segments within the ESG investing space.  The number of alternative investment funds that consider environmental, social or corporate governance criteria has grown more rapidly than any of the other types of funds that US SIF Foundation tracked in its 2012 Report on Sustainable and Responsible Investing Trends in the United States. Alternative investment funds include social venture capital, double or triple bottom line private equity, hedge funds and property funds.  US SIF Foundation identified an estimated $132 billion in capital under the management of 301 alternative investment funds at the start of 2012, up dramatically from the $37.8 billion identified by US SIF Foundation in 177 funds just two years earlier, at the start of 2010.

Close behind in the rate of growth over the same two-year period were the assets of mutual funds that consider ESG criteria.  The number of such funds grew from 250 to 333, and their collective assets more than doubled—from $316 billion to $641 billion.

The assets in community investing institutions such as community development banks, credit unions and loan funds also expanded significantly—by 47 percent—from 2010 to 2012. A major part of the growth can be explained by the increase in the number of banks—from 62 to 88—that gained certification from the US CDFI Fund as community development financial institutions (CDFI).  Additionally, community development credit unions won new members and accounts over the last two years, in part because of “Move Your Money” campaigns, created to motivate investors to move money from large financial institutions tarnished by the recent financial crisis. The number of community development loan funds certified as CDFIs has also grown in the last two years.

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As many of you know, we at Principled Solutions have been managing socially responsible portfolios for decades.  Give us a call if you are interested in learning more.

Reprinted from The Forum for Sustainable and Responsible Investment