SRI assets grow to $600 billion

Canadian assets invested according to socially responsible guidelines have grown to $600.9 billion, according to the Social Investment Organization’s biennial review of the SRI industry.

That’s a 16% increase since the SIO last surveyed the industry in 2010.

SRI assets represented about 20% of overall assets under management in Canada as of December 31, 2011, up slightly from 19% in 2010.

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“Since our last report just one-and-a-half years ago, socially responsible investment assets in Canada continue to climb, showing growth in virtually every major market segment and outpacing growth of total assets under management,” the report states.

“While growth in the industry can certainly be attributed in large part to the overall growth of Canada’s large public pension plans with socially responsible investment programs, there was growth in retail assets, the asset management sector, and in impact investing.”

Pension fund assets accounted for $532.7 billion, or 89% of the total SRI market. Asset management firms investing with SRI mandates represent about $48 billion or 8% of total SRI assets, while retail SRI funds – which include mutual funds and retail venture capital funds – reached $13.5 billion, about 2% of assets.

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“Retail investment assets grew by 8% over the last year-and-a-half, continuing a trend dating back to the first Canadian study in 2000 of consistent year-over-year growth, with the exception of the decline seen in 2010 related to the global financial crisis,” the report noted.

Impact investing assets grew 20% from 2010, reaching $5.3 billion in 2011, while clean tech private placements accounted for about $1.3 billion of the total, the only area showing a decline from 2010, when it accounted for $1.4 billion.

As in past surveys, pension funds continue to represent the bulk of SRI assets in Canada, led by the Canada Pension Plan Investment Board, with $161.6 billion in assets, and Quebec’s Caisse de dépôt et placement, with $159 billion.

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“Canada has a large and well-respected system of public management of our public pensions,” the report notes. “These institutions represent some of the largest investment managers in Canada, as well as some of the largest institutional investors in the world. Many of these institutions have been early adopters of responsible investment policies and continue to show leadership in responsible investment worldwide.”

Three investment strategies dominate the SRI market, the report notes, corporate engagement/shareholder action, integration, and negative/exclusionary screening.

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On the pension side, the most common strategy is corporate engagement and shareholder action, including directly engaging with the boards and senior management of companies on environmental, social and governance (ESG) issues.

The integration of ESG considerations alongside traditional financial measures in the analysis and selection of investments is also a prevalent strategy. In addition, many pension funds are signatories to the United Nations-backed Principles for Responsible Investment, which has compiled a list of responsible investment principles for institutions to follow.

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Negative or exclusionary screening is the single largest strategy employed in the SRI mutual fund industry, with 38% of funds screening on items such as tobacco and weapons.

However, most SRI mutual fund families employ a combination of strategies, the report says, the most common of which is exclusionary screens combined with either a best-of-sector or integration approach.