SRI Market Demonstrates Robustness in Weak Markets

Cerulli Associates


Socially responsible (SRI) or sustainable investing is proving remarkably robust despite current market conditions. Cerulli Associates’ preliminary market sizing underscores the robustness of

the SRI market—the U.S. market for SRI now stands at US$1.9 trillion compared to US$1.4 trillion as per the September 2001 issue of The Cerulli Edge—Global Edition.
A number of dynamics are coalescing to strengthen this market segment:

* Typically, social investors are ‘stickier’ than mainstream investors
and are reacting stoically to adverse market conditions by staying with funds in greater percentages than conventional investors–not that SRI implies a sacrifice in returns.

* SRI also presents an opportunity to win over first-time investors, an
important demographic stratum, especially in Europe as pension reform takes off.

* Increasingly, the SRI market segment is underpinned by legislative initiatives. In the United States, the Securities and Exchange Commission has proposed that all U.S. mutual funds be required to vote their proxies on the basis of publicly available guidelines and make their votes available to shareholders. This may result in an increased responsiveness of management to shareholder concerns.

* At a European Union level, the European Multi-Stakeholder Forum
on Corporate Social Responsibility (CSR), set up earlier this year, is
charged with devising guiding principles on disclosure by pension
and retail funds of their SRI policy by mid-2004. The disclosure regulations in the United Kingdom in respect of pension funds have already spawned imitations in other—mainly European–countries.

* Increasingly, SRI and CSR, which have developed in parallel, are converging. Investors want company boards screened for responsible The Cerulli Edge-Global Edition™—Socially Responsible Investing
governance practices, such as the independence and diversity of the
audit committee.

* Corporate accounting scandals, such as those engulfing Enron and WorldCom, compounded with the down draft in equity markets, have chilled retail investors. Given the depth of distrust, fundamental corporate and financial market reforms (many corresponding to issues and recommendations that the SRI community has been making for years) will be required to restore trust.

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