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Socially Responsible Investing Rose During Downturn

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The pool of assets devoted to socially responsible investing (SRI) and sustainable investing has come a long way from its origins in the late 1960s and early 1970s, when it was considered a niche market that would be unlikely to attract a wide following. Instead it now grows at a faster rate than the broader universe of investments, according to a new report from the Social Investment Forum.

The Forum’s 2010 report, the 2010 Report on Socially Responsible Investing Trends in the United States, released Tuesday, says that the money devoted to SRI in the U.S. amounts to more than $3 trillion, with almost $1 out of every $8 under professional management. Not only that, SRI assets grew during the economic downturn by a rate of 13%, from $2.71 trillion to $3.07 trillion, while overall assets just increased by 1%. This growth is due to such factors, says the report, as net inflows into existing SRI products, new SRI product development, and the adoption of SRI strategies by managers and institutions that had not previously used them.

Since 2005 SRI assets grew by more than 34%, with the most recent Trends report identifying $2.71 trillion in total assets under management using one or more of the three SRI strategies: screening (the consideration of environmental, social, and governance [ESG] factors), shareholder advocacy (including the filing of shareholder resolutions) and community investing.

In a conference call held by the Social Investment Forum on Tuesday, speakers Lisa Woll, CEO of the Social Investment Forum; Cheryl Smith, Ph.D., CFA, Social Investment Forum board chair, president and senior portfolio manager at Trillium Asset Management Corp.; Meg Voorhes, Social Investment Forum deputy director and research director; and Trends report lead author Joshua Humphreys, Ph.D., a lecturer at Harvard University and the director of the Center for Social Philanthropy, discussed the report and its broader implications.

In a statement, Woll said, “Socially responsible and sustainable investing emerged from the recent financial crisis doing better than the overall market in terms of holding onto assets and attracting new investments. What is significant about this strong growth is that it encompasses both retail investors, including SRI mutual funds, and institutional investors, who hold the majority of SRI investments. We have also seen robust expansion of the strategies of shareholder advocacy and

community investing. All of these developments show that the key principles of socially responsible and sustainable investing are being more widely embraced. All signs point to more investors looking for investments that support good governance and greater transparency and disclosure on ESG issues.”

The issue of fiduciary duty is an important element. Nearly a quarter of respondent institutions to the questionnaires for the report, managing $651 billion in ESG assets, say that they incorporate ESG criteria to fulfill fiduciary duty.

The report also tracks shareholder resolutions, and Voorhes noted that there was a spike in those in 2010, relative to both environmental and social issues. “In 2007, 2008, and 2009,” she said in response to a question, “16% or so of proposals on environmental and social issues that came to a vote would get support of 30% or more. This year,” she noted, “instead of a mere 15-17% getting this support, it leapt to 29% of proposals that came to a vote through early August.” While she says part of this is the learning curve shareholders must go through as they get more knowledgeable about issues, the other factor is the events of 2010.

She cited “a number of events” early in the year, including the disaster at the Massey coal mine, in which 29 miners were killed; the BP oil spill; and even the Supreme Court decision on Citizens United; as having a substantial effect on resolutions.

The first two, she said, occurred just as the corporate annual meeting season was getting under way, “and safety issues have material impact on companies.” The Citizens United ruling, she added, “raised concern among many investors that corporations might be devoting a lot more corporate funds to political campaigns, and that could hurt their reputations. Growing support for a group of proposals has been around now for five years, asking companies to develop strong governance controls and board oversight on political spending.”

Smith said that while this fall there had been a noted increase of votes for such shareholder resolutions, “the cycle of time [for filing resolutions] is much longer than that, so I would expect we would see an increasing number of resolutions filed in the fall and winter that will come up in the spring of 2011. The votes increased this year, and resolutions and votes [will both] increase next year.”


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