In the United States alone, the total value of professionally managed assets integrating socially responsible investing considerations expanded to nearly $7 trillion at the start of 2014, from just under $4 trillion at the start of 2012.
While socially responsible investing, or “social finance” as BNY Mellon calls it, is gaining traction among investors, there are still several challenges to unlocking its full potential.
BNY Mellon released a report “Social Finance at Scale: Creating Value for Investors” addressing the challenges facing socially responsible investing.
BNY Mellon points to research that shows just how large the need is for social finance. BNY Mellon’s definition of “social finance” – more broad than what is traditionally considered SRI – refers to any investment activity that generates financial returns and includes social or environmental impact.
“The annual global investment needed in developing countries in key sectors related to the proposed UN Sustainable Development Goals is estimated to range from US$3.3 trillion to US$4.5 trillion,” the report states. “Current investment in these sectors is around US$1.4 trillion, leaving an investment gap of between US$1.9 and US$3.1 trillion per year.”
Charles P. Dolan, the chief investment strategist for fixed income, cash and currency at BNY Mellon Investment Management, and BNY Mellon believes there needs to be a greater effort industry-wide to motivate the investment community and engage clients.
“When we look at the research, we see … trillions of dollars needed to address various problems,” said Dolan, in an interview with ThinkAdvisor. “We and others feel there’s just not enough of public sector money or philanthropy to meet these needs.”
To determine the challenges facing social finance, BNY Mellon looked at its own insights, sponsored research conducted by Business for Social Responsibility, and had conversations with dozens of mainstream and social finance investors.
“What we also did was we went and we talked to investors and said, what is it that’s potentially keeping you from doing more in this area?” Dolan told ThinkAdvisor.
And from there, BNY Mellon proposed five challenges that need to be addressed to bring social finance to scale.
“I feel quite strongly that this is something that we need to do,” Dolan told ThinkAdvisor. Adding, “We identified [a number of] specific things that we feel quite strongly are not only things people can do but can evidence that they are doing. Some of these overlap with the U.N. Principles of Responsible Investing, but what we believe are more specific and targeted on things that we believe will change the [social finance] landscape the most.”
Here are the five challenges facing the social finance industry: