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GreenMoney Journal - publishing since 1992
Fall 2010 issue
Socially Responsible Investing – Better Companies, Better Communities
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The 2003 Report on Socially Responsible Investing Trends in the United States
the Social Investment Forum
Every two years a very exciting report comes out on the socially responsible investing (SRI)
industry. It covers the scope of SRI in the U.S. - screening, shareholder advocacy, and community
investing. Before we reveal the Trends Report's positive findings it is helpful to understand the
definitions of SRI that were used by the Social Investment Forum, the national trade association
for the socially and environmentally responsible investing industry, who released the report in
November:
Socially responsible investing is an investment process that considers the
social and environmental consequences of investments, both positive and negative, within the
context of rigorous financial analysis. It is a process of identifying and investing in companies
that meet certain standards of Corporate Social Responsibility (CSR) and is increasingly practiced
internationally. As the Prince of Wales Business Leaders Forum explains: "Corporate Social
Responsibility means open and transparent business practices that are based on ethical values and
respect for employees, communities, and the environment. It is designed to deliver sustainable
value to society at large, as well as to shareholders." Whether described as social investing,
ethical investing, mission-based investing, or socially aware investing, SRI reflects an investing
approach that integrates social and environmental concerns into investment decisions.
Social
investors include individuals, businesses, universities, hospitals, foundations, pension funds,
corporations, religious institutions, and other nonprofit organizations. Social investors
consciously put their money to work in ways designed to achieve specific financial goals while
building a better, more just and sustainable economy. Social investing requires investment managers
to overlay a qualitative analysis of corporate policies, practices, and impacts onto the
traditional quantitative analysis of profit potential.
Socially Responsible
Investment Strategies
Socially responsible investing incorporates three dynamic
strategies that work together to promote socially and environmentally responsible business
practices and, in turn, encourage improvements in the quality of life throughout
society:- Screening is the practice of including, excluding, or evaluating
publicly traded securities from investment portfolios or mutual funds based on social and/or
environmental criteria.
Generally, social investors seek profitable companies that make
positive contributions to society. "Buy" lists include enterprises with above average to best in
class employer-employee relations, strong environmental practices, safe and useful products, and
operations that respect human rights around the world. Conversely, they avoid investing in
companies whose products and business practices are harmful.
- Shareholder Advocacy
describes the actions many socially aware investors take in their role as owners of
corporate America. These efforts include dialoguing with companies on issues of concern, as well as
filing, co-filing, and voting on proxy resolutions. Proxy resolutions on social issues and
corporate governance issues are generally aimed at influencing corporate behavior toward a more
responsible level of corporate citizenship, steering management toward action that enhances the
well-being of all the company's stakeholders in alignment with improving financial performance over
time.
- Community Investing is capital from investors to communities that
are underserved by traditional financial services. It provides access to credit, equity, capital,
and basic banking products that these communities would otherwise not have. In the U.S. and around
the world, community investing makes it possible for local organizations to provide financial
services to low-income individuals, and to supply capital for small businesses and vital community
services, such as child care, affordable housing, and healthcare.
The 2003 Trends
Report:
Socially and environmentally responsible investing in the United States has
proven remarkably robust during 2001 and 2002, despite sluggish market conditions that have
resulted in a downturn in assets in the wider investment universe. Most notably, socially screened
portfolios counted by this report grew seven percent, while the broader universe of professionally
managed portfolios fell four percent.
Highlights of the 2003 Report on Socially Responsible
Investing Trends in the United States include:
TOTAL SRI ASSETS
A
total of $2.16 trillion in assets was identified in professionally managed portfolios using one or
more of the three core socially responsible investing strategies - screening, shareholder advocacy,
and community investing.
SHARE OF TOTAL UNIVERSE
More than one out of
every nine dollars under professional management in the United States today is involved in socially
responsible investing. The $2.16 trillion managed by major investing institutions - including
pension funds, mutual fund families, foundations, religious organizations, and community
development financial institutions - has remained stable, accounting for 11.3 percent of the total
$19.2 trillion in investment assets under professional management in the United States, nearly
equal to 2001.
IMPRESSIVE GROWTH - TODAY AND OVER TIME
From 1995 to
2003, since the inception of the Forum's biennial Trends Reports, SRI assets involving screening of
retail and institutional funds, shareholder advocacy, and community investing, have grown 40
percent faster than all professionally managed investment assets in the U.S. Investment portfolios
involved in SRI grew by more than 240 percent from 1995 to 2003, compared with the 174 percent
growth of the overall universe of assets under professional management over the same time period.
SCREENED PORTFOLIOS
Total assets under management in portfolios
counted by this report employing one or more social screens rose seven percent between 2001 and
2003, while the broader universe of all professionally managed portfolios fell four percent during
the same time period. A total of $2.14 trillion in socially screened portfolios was identified, up
from the $2.01 trillion reported in 2001. Of the $2.14 trillion in socially screened portfolios,
$1.99 trillion are found in separate accounts (portfolios privately managed for individuals and
institutions) and $151 billion reside in mutual funds.
MUTUAL FUNDS
Socially screened mutual funds assets identified by this report grew by 11 percent, to $151
billion, up from $136 billion in 2001. Socially responsible mutual funds increased to 200 funds in
2003, up from 181 in 2001, 168 in 1999, and 139 in 1997. In terms of attracting investor assets,
socially screened mutual funds grew on a net basis in 2002 while the rest of the mutual fund
industry contracted. According to Lipper, socially responsible mutual funds saw net inflows of $1.5
billion during 2002. Over the same time, U.S. diversified equity funds posted outflows of nearly
$10.5 billion.
SEPARATELY MANAGED, SCREENED ACCOUNTS
Assets in
socially screened separate accounts grew by seven percent since the 2001 Report on Socially
Responsible Investing Trends in the United States. Separately managed accounts climbed to $1.99
trillion in 2003, as compared with $1.87 trillion in 2001, $1.34 trillion in 1999, and just $433
billion in 1997.
SHAREHOLDER ADVOCACY
Between 2001 and 2003,
shareholder advocacy activity increased by 15 percent, growing from 269 resolutions tracked by this
report filed in 2001 to 310 in 2003. Likewise the average percentage of votes received on these
resolutions has increased from 8.7 percent in 2001 to 11.4 percent in 2003. Of the $2.14 trillion
in all socially screened portfolios, $441 billion are in portfolios controlled by investors who are
also involved in shareholder advocacy on various social and environmental issues.
COMMUNITY INVESTING
Community investing climbed 84 percent between 2001
and 2003. Assets held and invested locally by community development financial institutions (CDFIs)
based in the United States totaled $14 billion in 2003, up from $7.6 billion in 2001.
INTERNATIONAL TRENDS
Socially responsible investing is growing globally.
From the screening and shareholder advocacy of UK pension funds to a multitude of small-scale
community investing initiatives reaching millions throughout Asia, a wide array of socially
responsible investment products are now available in more than 21 countries.
About
the Social Investment Forum:
The Social Investment Forum, Ltd. is a national nonprofit
membership association dedicated to promoting the concept, practice, and growth of socially and
environmentally responsible investing.
The Forum's membership includes over 500 social
investment practitioners and institutions, including financial advisers, analysts, portfolio
managers, banks, mutual funds, researchers, foundations, community development organizations, and
public educators. Membership is open to any organization or practitioner involved in the social
investment field.
For more information on the Trends Report, SRI, and membership go to-
http://www.socialinvest.org
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