European sustainable and responsible investment assets under management climbed to €2.7 trillion ($3.6 trillion) at the end of 2007, a 157% increase from two years earlier, according to a study released earlier this month.
About 50% of those assets were invested in equities and 39% in bonds, according to the biennial study published by Paris-based European Social Investment Forum, an industry organization with members that include pension funds, asset managers and consultants.
About 4%, or €56.6 billion, of total SRI assets are invested in real estate, 1.4% in private equity and venture capital, 1.3% in hedge funds and the remainder in commodities. Most of the alternative SRI assets are managed on behalf of Dutch investors, including the €205 billion Stichting Pensioenfonds ABP, Heerlen, and the €88 billion Pensioenfonds Zorg en Welzijn, Zeist, according to the study.
“One of the biggest changes (in SRI) is that pension funds are moving beyond just investing in equities to all other asset classes,” said Matt Christensen, executive director of Eurosif. “Investors used to only talk about SRI in terms of equities. They're realizing that actually they should be looking at other asset classes — from real estate to fixed income to private equity to hedge funds. This is an acknowledgement that these (SRI) risks do matter, in all areas of investments.”
Segregated mandates account for about 82% of total SRI assets under management, while another 12% is invested in mutual funds. Structured products, funds of funds and other types of investments account for the remainder. Funds of funds, although still “marginal,” have grown steadily over the past two years and now total about €2.4 billion in assets, according to the study.
European investors account for about 53% of total global SRI investments, according to the study. The U.S. accounts for 39%, with about $2.7 trillion in SRI assets. The remainder comes mostly from Canada and Australia.
“I think U.S. pension funds will be shifting into SRI in a big way,” Mr. Christensen said. “SRI management is long-term investment management, and pension funds are long-term investors.”
Thematic funds — strategies that follow certain environmental, social and governance convictions such as climate change — are a relatively new approach to SRI. Because thematic portfolios focus on ideas in which investors see strong growth potential rather than negative screening of specific companies or industries, the strategies themselves usually allow for a broader opportunity set as well as better diversification, according to the study.
One early user of thematic funds is Henderson Global Investors Ltd., London. Henderson is expanding into the U.S., with the launch in August of its global SRI thematic strategy for institutional and retail investors, said George Latham, the London-based head of SRI funds.