Thursday, April 30, 2009

SRI assets jump 21% to more than $600 billion

Asset invested according to socially responsible (SRI) guidelines increased to $609.23 billion from $503.61 billion, from 2006 to June 30, 2008, according to the Social Investment Organization’s biennial industry study, which was released today.

“While the growth rate [21%] was lower than the growth rate experienced by SRI in the 2004 to 2006 period, this report shows that SRI is continuing to occupy a significant share of the financial services market in Canada,” the study notes.

Core SRI assets, defined as those most closely associated with traditional values-based approaches to SRI, declined to $54.17 billion from $57.39 billion in 2006, a decrease of 5.6%. This decline was attributable to general market conditions rather than a reduction in the number of managers with SRI mandates. The decline was most pronounced among asset managers with institutional clients, partially offset by an increase in retail SRI funds, particularly due to growth in renewable energy income trusts, the study revealed.

Broad SRI assets, which include strategies to integrate environmental, social and governance (ESG) factors into financial analysis and portfolio management, was responsible for most of the growth in overall SRI assets, rising to $555.06 billion from $446.22 billion two years earlier.

“The growth reflects a small increase in the number of pension plans and endowments with responsible investment policies, as well as asset growth by pension funds with existing responsible investment policies. This growth was partially offset by a decline in asset managers with institutional mandates using ESG integration strategies. Sustainable venture capital, while representing a relatively small part of total SRI assets, continued to enjoy substantial growth between 2006 and 2008.”

The study found that $544.13 billion in pension and endowment assets invested under responsible investment policies in Canada in 2008, a 26% increase from $433.07 billion in 2006. “These assets are mostly in the large public pension sector, reflecting a consensus among the managers of Canada’s large public pensions that responsible investment represents a prudent policy for investment fiduciaries.”

Pension and endowment assets are the single largest component of assets in the wider SRI category, as well as the largest component of SRI in total. While the 26% growth rate is substantial, the growth rate between 2006 and 2008 was much smaller than the growth rate between 2004 and 2006, when a number of pension managers first adopted responsible investment policies.

At the end of June 2008, retail investment funds fund assets totalled $22.19 billion, a 22% cent increase from 2006. This includes $8.41 billion in assets of renewable energy income trusts, a 40% increase from 2006; $8.24 billion in assets of socially responsible retail venture funds, an increase of 7.2% from 2006; and $5.54 billion in assets of socially responsible mutual funds, an increase of 25% cent from two years earlier.

As a comparison, market growth in this period was 24%, as measured by the S&P/TSX Composite Index meaning that growth in the renewable energy income trusts exceeded market growth, growth in SRI retail venture capital funds was below market growth and growth in SRI mutual funds was about the same as market growth.

“At more than $600 billion in core and broad SRI strategies, socially responsible investment is holding steady at nearly 20% of assets under management in Canada, the study concludes. “Screened and integrated approaches by asset managers suffered declines in assets as a result of general market conditions, but these declines were more than offset by continued growth in broad SRI strategies by large public sector pension plans. In addition, while small by comparison with total assets, substantial growth continued among SRI mutual funds, renewable energy income trusts and sustainable venture capital.”

The market downturn in the second half of 2008 is not reflected in the report, but the SIO says it believes that SRI is well-positioned to survive the current economic turmoil and resume its impressive growth pattern.

“In spite of these difficult times, there is evidence that Canadians want their investments to pose solutions to global social and environmental issues, not to simply profit from the status quo. Socially responsible investment is proposing such solutions through investment screens, integration of social and environmental issues into the investment process, corporate engagement on social and environmental issues, sustainable venture capital, community investment, social finance and ethical lending.”

“We believe that socially responsible investment represents the leading edge of the investment industry, and points the way forward for mainstream analysis and investment selection in the years ahead.”

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