Gary R. Matthews
It has been quite some time since socially responsible impact (SRI) investing has been a fringe phenomenon - something only a handful of mission-based organizations and morally-conscious individuals engaged in because they cared as much about doing something decent with their money as earning a return on it. Today, SRI could more accurately be characterized as the single largest and most influential trend in investing, period.
In 1995, the US SIF Foundation published its first landmark Trends Report on SRI in the United States, a study measuring the amount of investment dollars in the U.S. being managed using at least one SRI strategy. The number then was $639 billion (not just a fringe phenomenon even then). Just a couple of weeks ago, USSIF issued its latest report, entitled Report on US Sustainable, Responsible and Impact Investing Trends – 2018. Today, SRI investing in the U.S. involves $12 trillion, more than 18 times the 1995 figure. This now represents 26% of the total U.S. assets of $46.6 trillion under professional management
While the growth in SRI from 1995 to 2012 was steady and significant, it has accelerated dramatically since then. In 2012, SRI investing had grown to $3.74 trillion. By 2016, it was $8.7 trillion. 2018’s number of $12 trillion represents a 38% increase in just the last two years.
SRI strategies have become more sophisticated over the years as well. It is often noted that SRI received its first significant modern-day impetus in about the year 1980, with a well-known and powerful grassroots investor movement to divest from securities of publicly-traded companies then doing business with the racist apartheid government of South Africa. Investors pulled their assets out of these securities and reinvested them in more acceptable alternatives. Back then, the primary SRI strategy was simply not to invest or to divest from the securities of public companies engaged in businesses thought to be harmful (tobacco, alcohol, gambling, pornography, weapons makers, etc.), or where the companies had unsavory business partners, as with the apartheid South African government of the day.
Today, SRI (as described and measured by the Trends Report) consists of two major strategies. First, SRI professional portfolio managers incorporate a much broader array of criteria in their investment analysis than typical non-SRI managers. In addition to the financial characteristics of potential investments, SRI managers consider a wide variety of environmental, social, and governance (ESG) factors in the selection of securities in their managed portfolios. Corporations that have acceptable track records on all or most of these criteria are selected. The focus is not on which companies are left out of the portfolio, so much as which companies are included in the first place. In addition to securities of public companies, SRI portfolios today often include securities in privately-held socially and/or environmentally focused enterprises, or where the investment dollars are specifically targeted to benefit economically underserved communities (community impact investments).
The second major SRI strategy involves investment assets managed by investors and portfolio managers who file or co-file shareholder resolutions at public companies on ESG issues. These resolutions are often aimed at having companies be more transparent in the public reporting of their business practices, particularly as those practices relate to or have significant impact on the environment, labor fairness, local communities, executive compensation, safe products, human rights, war-making and social violence. Such resolutions are receiving more support from shareholders today than ever before and are having significant positive influence on how companies are operating and being managed.
What’s driving this accelerating growth of SRI? Quite simply, it’s the increasing demand from investors like you, investors who seek to use their assets to help make the world a better, safer, fairer place, investors with vision, compassion, and a sense of justice. We at SRI Investing are proud to work with you, and proud of the positive impact you are making.