Social investment on the upswing, survey reveals

(May 6, 2005) Total assets in Canada’s social investment industry jumped 27% in the past two years, according to a study released today by the Social Investment Organization.

The survey, produced by the SIO every two years, shows total SRI assets of $65.5 billion, with solid growth across most categories, including asset management and retail social investment funds. The current market penetration of socially responsible investment in Canada is estimated to be 3.6% of total mutual fund and institutional assets, up from 3.3% in 2002.

“The market for socially responsible investment shows great potential,” the report says. “It’s clear that there is much room for growth in this market both for mainstream and non-mainstream players, and for the introduction of new products and services.”

Asset management firms and institutional investors accounted for the bulk of the SRI assets, at $21.1 billion and $25.4 billion, respectively.

Retail social investment funds were worth nearly $15 billion last year, mostly due to the explosive growth of alternative energy income trusts during the last few years, worth more than $4 billion. Socially-screened mutual funds accounted for $4.4 billion in retail assets, while labour funds stood at $6.24 billion.

In spite of the growth in SRI, the report notes that relatively few investment companies in Canada are really paying attention to this market.

“It is apparent that the firms currently offering SRI services are capturing a larger share of this market, and average SRI assets per firm are growing sharply,” states the report. “Unless mainstream asset management firms become more aware of the potential of the SRI market, and introduce SRI products and services, this industry will continue to be dominated by a small number of players.”

“The mainstream Canadian banking and investment community should heed the warning this study points to,” adds Matthew Kiernan, CEO of Innovest Strategic Value Advisors. “With very few offering SRI products of any sort in Canada, this sector is falling further behind its global competitors, even from the United States, who are becoming more conscious of the segment of potential investors in SRI.”

Despite the growth, there are still challenges for social investment advocates, particularly at the retail fund level, where the numbers remain relatively soft.

“The issue of socially responsible investment is rarely discussed between advisors and their clients,” the report notes. “In a major national survey of Canadian shareholder attitudes in 2003, GlobeScan found that two-thirds of investors had never discussed the corporate social responsibility performance of their companies in their investment portfolio. Thirteen percent said they had brought up the issue with their advisor and only 8% said their advisor had introduced the issue with them.

Still, the major retail SRI fund companies in Canada are optimistic over the sector’s future. “The Canadian market will expand as more consumers leverage their power by demanding greater corporate social responsibility from their investments,” said Don Rolfe, President and CEO of Ethical Funds. “Today, shareholders want investments that are smart for the planet and smart for their portfolios, too, and SRI is delivering that in a big way.”

“This report mirrors what we have seen at Meritas Mutual Funds,” said Meritas CEO Gary Hawton. “Retail demand for our mutual funds has been very strong and is driven by both advisors and investors. We have also seen increasing demand within our institutional division from foundations, endowment funds and employee pension funds.”

“We have observed that interest in sustainable and socially responsible investment is rising among major institutional investors in Canada,” added Acuity president Ian Ihnatowycz. “Institutions are becoming increasingly aware of the long-term benefits of incorporating sustainability analysis into the investment process.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com