Growing institutional, HNW interest boosts social investment sector

(May 6, 2003) Canada’s socially responsible investment managers have managed to maintain their market share of investment assets thanks to growing interest from smaller institutions and high net-worth investors, according to a report released yesterday by the Social Investment Organization (SIO).

Total assets managed according to social responsibility guidelines stood at $51.4 billion as of June 30, 2002, up from $49.9 billion in 2000, the Canadian Social Investment Review reveals. That’s 3.3% of the Canadian market, unchanged from three years ago.

“It’s not a huge growth rate, but we’re certainly happy that the numbers are up,” says SIO executive director Eugene Ellmen.

Although investment in retail socially responsible investment (SRI) funds — including mutual and labour sponsored funds — fell from $10.3 billion in 2000 to $9.9 billion in 2002, assets controlled by investment management firms jumped nearly 50% to $16.7 billion.

“While some of this money represents assets that were unidentified in our earlier study, this finding is significant given the downturn in stock markets,” the study states. “This shows there is growing interest in SRI among institutional and high-net-worth investors.”

Ellmen says he was surprised by the increased number of asset management companies with screened accounts. “We found that 47 had screened accounts, compared to 33 in 2000,” he told Advisor.ca. “That shows that a lot of companies are getting relatively small accounts, either large HNW investors or small institutions, who are interested in SRI and pressing companies to adopt SRI policies.”

Last year’s accounting scandals south of the border and related concerns about corporate governance may have played a part in the increased interest, Ellmen suggests. “They’re looking at governance reforms that need to take place to make the corporate community more accountable.”

Assets controlled by investment management firms come from four main clients: pension plans, religious institutions, public institutions (such as universities and hospitals) and foundations. Asset management and institutional accounts include screened pooled funds, segregated accounts and private stock portfolios.

Large institutions who manage their assets in-house account for the largest share of SRI money, about $24 billion, down from $27 billion in 2000. “That’s reflective of the overall markets,” Ellmen says.

The retail slide was not unexpected given the bear market, but still a bit of a disappointment, Ellmen admits. Although the number of screened funds grew to 53 last year from 36 in 2000, retail assets were off 4%. “It’s been hard for some of the new funds because they’ve launched in a very tough environment,” he says. “Our expectation is that if the markets come back, that concerns over corporate accountability will help drive retail funds as well.”

An area of concern for the SIO is community investment. About $65 million was invested in community investment organizations, such as micro-fund loans, in 2002, down from $85 million in 2002. “It’s been quite moribund,” Ellmen declares. “Some of the pilot projects launched in the 1990s are now having trouble with funding and are in a state of decline.” The SIO is launching a national study on community investment to examine ways to reinvigorate the sector, Ellmen says.

The bi-annual social investment review study is based on public data combined with a survey of 117 money management firms, 10 institutional investors and 17 community investment organizations between September 2002 and February 2003.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca