More investors are turning to SRI: report

Al Gore might be the poster boy for environmental issues, but it’s investors who are putting their money where their mouth is. On Thursday, Toronto-based Social Investment Organization reported that socially responsible investment assets in Canada have increased more than 668% since 2004, from $65.5 billion to $503.6 billion.

“It’s been quite a breakthrough year,” says Eugene Ellmen, executive director of the SIO, a membership-based organization that promotes socially responsible investing, and releases the Canadian Socially Responsible Investment Review every two years.

The increase is due to a few factors, says Ellmen, one being a heightened level of consciousness about environmental issues. “There’s a growing awareness of climate change and how that affects the future of our economies, the planet’s future and future generations. The investment industry is not blind to that.”

The single biggest factor contributing to the increase, however, is large pension plans’ adopting SRI policies. In 2004 pension plans accounted for about $25 billion of the total SRI market; this year that figure is up to $433 billion. “Pension plans are adopting SRI policies for the same reason people are driving hybrid cars,” says Ellmen. “Issues like climate change and the environment and international development are a concern to stakeholders and management of these big funds.”

Pension plans’ large stake in the SRI market means broad SRIs — investments in socially responsible products made solely for fiduciary reasons — now account for $446.2 billion, up significantly from $27.6 billion in 2004. Core SRIs — investments based on both financial analysis and socially responsible screening — have jumped 52% to $57.4 billion.

Gary Hawton, CEO of Meritas Mutual Funds, says these numbers prove that advisors can’t ignore their clients’ environmental and social concerns. “If the Canada Pension Plan is saying this makes sense, it’s pretty tough for an advisor to say that it doesn’t.” With more SRI funds available to financial planners, Hawton encourages advisors to look at all the options before investing their clients’ cash.

But it’s not just altruism that’s driving retail and institutional investors to SRI products; it also makes good business sense. A recent survey by SRI advocate Corporate Knights magazine reported that half of Canada’s 28 retail SRI equity funds had a return in the top half of the market in 2006. The study also found that the average one-year return on SRI funds was 11.37%, better than the 11.29% return of the average Canadian equity fund.

“Big institutional managers are recognizing that environmental performance, social responsibility and corporate governance are all relevant to the bottom line,” says Dermot Foley, vice-president of strategic analysis for Vancouver-based Inhance Investment Management. “For example, social responsibility works to protect value and brand in the marketplace. It doesn’t take a rocket scientist to figure out that Wal-Mart has suffered from its lack of awareness of its social responsibility.”

As social responsibility, environmental concerns and corporate governance issues become even more topical over the next few years, Ellmen and Hawton predict the SRI market, at both the retail and institutional levels, will grow exponentially. “It’s taken a while to build our case — that you can invest in a socially responsible way and still earn comparable returns,” says Ellmen. “Now that we’ve been able to make that case, the financial industry is beginning to sit up and take notice.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com