SRI – an animal that may become extinct

Green, social and ethical funds in Europe have grown considerably in number and size over the past year, in spite of the fallout from the financial crisis. Assets under management rose by 9 per cent a year to €53bn (£47bn, $77bn) by the end of June. Some say this proves socially responsible investing (SRI) is more than a fashion. Yet SRI remains a niche area with SRI assets reaching a mere 1.11 per cent of total assets in Ucits funds this year.

In the FT (November 27) Al Gore and David Blood called for “sustainable capitalism” to guide investors to think more long term and responsibly. Why don’t investors focus more on sustainability and the long term, they asked. We think part of the answer lies in the lopsided relationship between SRI and risk. SRI is often considered a non-financial overlay to the investment process. It seeks to protect the investor from making unethical, socially undesirable or environmentally unfriendly investments. Sustainable investment, however, has an investment return focus that regards sustainable development as an opportunity to invest based on a set of financial and nonfinancial criteria. These, therefore, are two very different animals and SRI may be holding back sustainable investing.

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