The latest sign that sustainable and responsible investing (SRI) is increasingly entrenched in the mainstream of the financial world: It now is making major strides in the world of “alternative investing,” according to a new report prepared for the US SIF Foundation by the Center for Social Philanthropy at the Tellus Institute. The US SIF Foundation is affiliated with US SIF – The Forum for Sustainable and Responsible Investment.
According to “Sustainability Trends in Alternative Investments in the United States,” $80.9 billion was invested in 375 alternative investment funds incorporating environmental, social and governance (ESG) criteria at the outset of 2011, reflecting a 15.9-percent growth in combined assets since the beginning of 2010, when 346 alternative funds managed a combined total of $69.8 million.
The alternative investment funds tracked in the report span the asset classes of private equity and venture capital funds, property investment funds and hedge funds, and they utilize a broad range of approaches to ESG criteria and themes.
US SIF CEO Lisa Woll said: “Alternative investments in sustainable and responsible investing are attracting a wide range of investors – high-net-worth families and individual ‘angel’ investors, mission-driven institutional investors such as philanthropic foundations, hospitals and faith-based institutions, and some of the largest and most prominent pension funds and private equity firms. The growth of the SRI alternative investment market is being supported by an ecosystem of investor networks and field-building organizations working to develop reliable metrics to evaluate the social and environmental returns of these funds.”
Report lead author Joshua Humphreys, Ph.D., director of the Center for Social Philanthropy at Tellus Institute, said: “Sustainable and responsible investing – the incorporation of environmental, social and corporate governance criteria into investment management activities – has become an increasingly important part of the capital markets. Within this growing investment field, now sized at more than $3 trillion in the United States alone, alternative investments are attracting unprecedented attention across asset classes, geographies and ESG themes.”
KEY REPORT FINDINGS
* Private Equity and Venture Capital Funds: Private equity and venture capital funds led the field of ESG alternative investment vehicles numerically with 233 distinct funds in 2011, or 62 percent of total funds tracked. In asset-weighted terms, however, private equity and venture funds are the second largest of the three asset categories studied, with $33.9 billion in combined assets under management, or 41.9 percent of the ESG alternative investment market.
* Property and Real Estate Investment Funds: Property and real estate funds managed 54 percent of total assets tracked in 2011, with a combined $44.3 billion under management in 95 distinct funds.
* Hedge Funds: In 2011, 47 hedge funds were identified with a total of $2.6 billion under management. Representing just 3.2 percent of total assets tracked and 12.5 percent of funds numerically, hedge funds are the smallest group of ESG alternative investment vehicles.
* Trends: Environmental criteria were predominant among ESG alternative investment funds in both numerical and asset-weighted terms, with $68.9 billion of total assets incorporating an environmental theme. Environmental criteria were followed by social criteria, which are considered by $48.8 billion of the assets studied, and then by governance criteria, which affected $37.5 billion. This illustrates the considerable overlap in ESG criteria within alternative investment funds. In 2011, 73 percent of alternative investment funds included multiple ESG criteria in fund management.
US SIF Deputy Director and Research Director Meg Voorhes said: “The majority of the alternative fund managers we reviewed consider several ESG criteria simultaneously, but environmental factors predominate. In particular, we see interest in green building, climate change issues, clean technology, renewable energy and energy efficiency. These managers look to produce market rates of return for their clients while helping to foster businesses, generate jobs or introduce products that will yield social and environmental benefits.”
For a chart showing the most prevalent ESG criteria, used in alternative investments, go to http://ussif.org/resources/topESGcriteria2011.cfm on the Web.
The lead sponsor of the US SIF report is Azimuth. Supporting sponsors of the report include: Arborview Capital; DBL Investors; Ecotrust Forest Management; Lyme Timber; Mission Markets; SJF Ventures; TerraVerde Capital Management; Trillium Asset Management; and Working Lands Investment Partners.
ABOUT US SIF AND US SIF FOUNDATION
US SIF Foundation, a nonprofit 501(c)(3) organization, supports the educational and research activities of US SIF: The Forum for Sustainable and Responsible Investment (US SIF). US SIF (http://www.ussif.org) is the US membership association for professionals, firms, institutions and organizations engaged in sustainable and responsible investing. US SIF and its members advance investment practices that consider environmental, social and corporate governance criteria to generate long-term competitive financial returns and positive societal impact. US SIF’s members include investment management and advisory firms, mutual fund companies, research firms, financial planners and advisors, broker-dealers, banks, credit unions, community development organizations, non-profit associations, and pension funds, foundations and other asset owners.