Assets hit $3.07 trillion in 2009 in socially conscious funds

U.S. socially conscious investing assets grew to $3.07 trillion as of year-end 2009, up 13.3% from $2.71 trillion in 2006, according to the Social Investment Forum Foundation’s latest report on such investing trends.

Assets grew at a faster rate than the broader universe of total assets under professional management, which was up less than a percentage point during the same period, according to the “2010 Report on Socially Responsible Investing Trends in the United States” and the SIF Foundation’s 2007 trends report.

As a result of the growth, 12.2% of the $25.2 trillion in assets overseen by U.S.-based and foreign managers for U.S. investors was involved in a socially conscious investing strategy as of year-end 2009, the report said. That percentage is up from 2006, when the share of the then $25.1 trillion in total assets under management was 10.8%.

Public pension funds and other publicly pooled funds managed for federal, state, county and municipal governments incorporate environmental, social and governance criteria across $1.46 trillion in assets and account for more than 70% of all institutional assets in those categories, and 58% of the $2.5 trillion in assets that incorporate the criteria into investment analysis and portfolio construction, the report said.

At year-end 2006, public pension funds and other publicly pooled portfolios had $1.16 trillion in socially screened assets, according to the 2007 trends report.

For the latest report, 52% of institutions that responded to a survey on why they incorporated environment, social or governance performance factors into their investments cited regulation or legislation more than any other reason.

The research identified $37.8 billion in total assets from 177 hedge funds, social venture capital and private-equity funds, and responsible property funds that incorporated environmental, social or governance performance criteria. That number is up 285% since 2007, the report said.

In referring to socially conscious investments, the report identified assets using at least one of three strategies: incorporation of environmental, social and governance performance factors into investment analysis and portfolio construction; filing shareholder proposals on those issues; and deposits or investments in banks: credit unions, venture capital funds and debt funds that have a specific community investing mission.

The pool of socially conscious investment assets has grown more rapidly than the overall investment universe due in part to the development of new products and the adoption of such strategies by managers and institutions not previously involved in the field, the report said.

Among institutions, the report identified 250 mutual funds, including those underlying annuity products, with a total of $316.1 billion in assets invested under environment, social or governance performance criteria. The most prevalent of those corporated into mutual fund management, in asset-weighted terms, are Sudan, tobacco, alcohol, gambling, defense/weapons and the environment. Sudan was the top criterion in asset-weighted terms, with $215 billion (47%) of mutual funds in the category in total net assets subject to Sudan-related investment policies — including $198 billion in TIAA-CREF’s mutual fund and annuity assets from its Sudan divestment, the report said.

In numerical terms, tobacco remains the most frequently applied criterion, affecting 64% of mutual funds in the sector, with $121 billion in assets. Alcohol criteria affect the management of half of such mutual funds, with $116 billion in assets, according to the report.

POST-CRISIS GAINS

SIF chief executive Lisa Woll said in a statement about the report: “Socially responsible and sustainable investing emerged from the recent financial crisis doing better than the overall market in terms of holding on to assets and attracting new investments.”

Cheryl Smith, chairwoman of SIF’s board, and president and senior portfolio manager of Trillium Asset Management, said in the statement, “Shareholder advocacy strategies increased in importance as mainstream investors increasingly joined with [socially conscious] investors to support and advocate for strong corporate governance and environmental sustainability.”

The report doesn’t measure socially conscious fund performance, Joshua Humphreys, co-author of the report and director of the Center for Social Philanthropy of the Tellus Institute, said in a Nov. 9 teleconference about the report.

SIF deputy director and research director Meg Voorhes, the co-author of the report, said during the teleconference that SIF early next year plans to examine performance of socially conscious investment funds.

Barry Burr is a reporter at sister publication Pensions & Investments.