The 2010 Report on Socially Responsible Investing Trends in the United States

From the Spring 2011 Green Money Journal

Every few years a very exciting report comes out on the sustainable and socially responsible investing (SRI) industry. It covers the scope of SRI in the U.S. including ESG incorporation, shareholder advocacy, and community investing. Before we reveal the Trends Report's positive findings it is helpful to understand the definitions of SRI used by the Social Investment Forum, the national trade association for the socially and environmentally responsible investing industry, who released the report in November:   Sustainable and Socially Responsible Investing Defined   Socially responsible investing is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact. Traditionally, responsible investors have focused on one or more of three strategies: ESG incorporation into investment analysis and portfolio construction, shareholder advocacy, and community investing. SRI practitioners include asset managers, investment advisors and asset owners. Among the owners of investment assets, both individual and institutional investors are actively involved in SRI strategies, and the types of institutions taking ESG matters into account range widely: from foundations and endowments to hospitals and healthcare plans, from state and local funds to private corporations, from faith-based institutions to other nonprofit organizations.   There is no single approach to or motivation for socially responsible investing. Some investors embrace SRI strategies to manage risk and fulfill fiduciary duties. Others are driven by their personal values, their institutional mission, or the demands of their clients, constituents or plan participants. Some are seeking hidden sources of alpha (financial out performance); others are seeking long-term sustainable social and environmental impact. Many institutions and individuals mobilize SRI strategies for complex reasons.   Just as there is no single approach to SRI, there is no single term to describe it. Depending on their emphasis, investors use such labels as: “sustainable investing,” “responsible investing,” “impact investing,” “mission-related investing,” “ethical investing,” “values-based investing” and “green investing,” among others. To reflect this diversity of terminology, this report uses the terms sustainable investing, socially responsible investing and SRI interchangeably.   Far from being a static enterprise, SRI is an evolving form of finance, and the proliferation of approaches underscores this basic dynamism. As the United Nations Principles for Responsible Investment have highlighted, “[t]here is a growing view among investment professionals that environmental, social and corporate governance issues can affect the performance of investment portfolios.”[1]. As an investment discipline, SRI strategies can be mobilized across asset classes within portfolios, and increasingly investors are applying ESG investment techniques not only to public equity investments, but also to real estate and alternative investments, such as private equity and venture capital.   What unites these diverse investment approaches—and what ultimately distinguishes them from the broader universe of assets under management in the United States—is precisely the explicit incorporation of ESG issues into investment decision-making, fund management or shareholder activities. The specific ESG factors and the way they are used may differ widely from investor to investor, and tactical and technical considerations are often specific to an institution or fund manager. But the basic strategies of SRI share sufficient features to be observed and measured. This report therefore seeks to quantify these various forms of strategic sustainable investment behavior, across the diverse terms that investors may use, the tactics they apply, and the motivations for their involvement.

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