Alt Investments
Socially Responsible Funds Grow, But Still in Minority

Before markets hit the buffers following the credit crunch, one of the most talked-about aspects of the fund management business was the trend for socially responsible investment.
SRI – which is a broad term that can include “green” investing – is part of a trend in which investors have been encouraged to use their market muscle to clean up company boardrooms, make executives more open about their pay and avoid allegedly “sinful” areas like tobacco and firearms.
So it may come as a surprise to learn that SRI-themed investment portfolios account for only 1 per cent of the European retail funds market, according to data from Lipper-Feri, the research firm. According to most up to date figures, SRI-themed funds hold about €40 billion of assets.
Although the figure is a relative drop in the investment ocean, SRI-based funds have risen rapidly in relative terms: since 2002, the size of this market has more than trebled. In May 2007, for example, net sales of SRI funds accounted for 10 per cent of all sales. There are a total of 498 SRI-linked funds in Europe, Lipper-Feri says.
The report said that although equity funds have typically dominated the SRI field, there are signs that fixed income and money market SRI funds are emerging as an area of interest for investors.
A continued debate rages around whether SRI funds can deliver superior returns to conventional funds over the long term. On one view, SRI funds will tend to lag the broad market because they screen out certain categories of company, thereby reducing the potential universe of stocks from which to choose. On the other side, some investment professionals say SRI funds will avoid those firms at risk from suffering damaging controversies over pay, corporate scandals and politically sensitive business areas. They also say that SRI-compliant firms typically are better run than their peers and generate superior returns.
Some numbers suggest that over the long run, SRI investment can deliver superior returns. Since the Dow Jones Sustainability World Index, which covers more than 300 stocks, was set up in 1999, it has delivered total returns of about 34 per cent, ahead of 31 per cent for the Morgan Stanley Capital International World Index of equities.