The socially responsible investing (SRI) market is poised to grow dramatically, predict the authors of a new report from Robeco and Booz & Company. According to Responsible Investing: A Paradigm Shift, socially responsible investments will reach $26.5 trillion assets under management (AUM) by 2015–over 15% of the global total.
Responsible Investing Grows Faster than the Overall Market
As of 2007, global SRI AUM was $5 trillion, with $2.7 trillion of that total invested in the United States, according to the Social Investment Forum's 2007 Report on Socially Responsible Investment Trends in the United States. SRI assets increased more than 18% between 2005 and 2007 in the US, while the broader universe of AUM increased less than 3%. Globally, the SRI market has grown at an annual rate of 22% since 2003, while global AUM growth rates have stagnated around 10%.
Growth Factors: Governments, UNPRI, and the Public
Robeco and Booz studied industry projections and also interviewed experts throughout the financial services industry. They found that SRI's growth drivers include growing demand from consumers and investors for corporate responsibility and government efforts to curb greenhouse gas (GHG) emissions. Also, more firms have sought to sign and comply with the UN Principles for Responsible Investing, and pension disclosure regulations in the UK have forced money managers to expand the scope of research on the impacts of their investments.
Some Big Players Still On Sidelines – For Now
SRI has room for even more dramatic growth, partly because many large players haven't actively pursued it yet. According to the report, "The top [SRI] fund managers are not necessarily the [mainstream] market leaders in terms of AUM."
But by 2015, niche players will have to grow considerably to remain competitive as major global players enter into the space. A Paradigm Shift notes that Deutsche Bank already has three funds with $2.8 billion AUM, and BlackRock seeks to increase its SRI holdings to 15% of its total AUM by next year. The report predicts that many more institutions of similar size will begin to take action in the near future.
Growing Market, Shifting Tactics
The authors of the Robeco and Booz report predict that as big new players enter the SRI space, the practice of responsible investment will evolve. The European Sustainable Investment Forum (Eurosif) already segments the market into "Core" and "Broad" SRI:
"Eurosif continues to segment the SRI market with Core SRI estimated at €512 billion and Broad SRI at €2.154 trillion. Core SRI consists of elaborated screening strategies systematically impacting portfolio construction and often implying a values-based approach while Broad SRI partly represents the mainstreaming of SRI and the growing interest of responsible investors, particularly large institutional investors, in this area."
Despite this segmentation, Robeco and Booz believe that the growth of SRI will accelerate: "This trend will significantly reshape the asset management landscape over the next few years…SRI will become mainstream within asset management by 2015."