Socially responsible assets in Canada dropped marginally to $531 billion as of June 30, 2010, compared with $579 billion in 2008, according to the biennial SRI review, released today by the Social Investment Organization. However, SRI still represents about one-fifth of total Canadian assets under management, about the same level as 2008.

“SRI has held steady, showing resilience in the face of the unprecedented turmoil in the capital markets brought about by the credit crisis of 2008,” the survey notes. “SRI continues to gain traction as a reliable mainstream tool for value enhancement, risk management and the realization of social and environmental goals.”

“I think the numbers are encouraging,” said SIO executive director Eugene Ellmen in an interview. “The assets are down somewhat, but the overall market share is about the same, about 20%. Where the significant decline in the numbers came was on the pension fund side, and that’s purely a result of the market declines in 2008.

“We’ve maintained our market share through the decline, markets have come back nicely in 2011 and I think that SRI is poised for growth in the future.”

Assets managed by pension funds make up the bulk of SRI assets in Canada at $453 billion, about 85% of the total. That’s a drop of about 11.6% from $513 billion in 2008.

The survey notes that Canada’s major, publicly-managed pension funds—such as the Canada Pension Plan Investment Board, OMERS and OPSEU Pension Trust—have been early adopters of responsible investment strategies.

SRI retail funds managed on behalf of individual clients gained some ground, rising to $25 billion compared with $22 billion in 2008. SRI mutual funds make up about half the total in this category, at $12.4 billion. Retail funds represent about 5% of total SRI assets in Canada.

“SRI mutual funds have had some challenges over the last couple of years, but they have bounced back nicely in 2011, and I think they are poised to grow as advisors learn more about socially responsible investment,” Ellmen says.

Renewable energy income trusts, which invest in a pool of investments focused on the production of clean energy, have grown to nearly $13 billion. There are some fundamental reasons for that, Ellmen explains, such as such as the rising price of oil, which has created opportunities in renewable energy. At the same time, there have been some key policy changes, such as the Feed-In Tariff program under the Ontario Energy Act.

Impact investments, such as community loan funds and social venture capital, represent $4.5 billion, or about 0.8% of total SRI numbers. It’s a small, but fast-growing segment of SRI, the report notes.

“I think impact investing has quite an exciting future because communities are looking for ways to use investment capital to improve their economies and to create opportunities for disadvantaged people”, Ellmen says. “Social finance is growing tremendously as an alternative to traditional ways of funding non profit organizations and social services. There’s a lot of attention in this area.”

The review also found that asset management firms investing funds under SRI mandates grew to $46 billion, about 9% of the total.

Credit crisis fallout
Despite the mostly solid numbers, the report notes that SRI was not immune to the gyrations in the capital market caused by the financial crisis in 2008. “Our last report tracked SRI assets in Canada just a few months before there was a historic collapse in share prices and investment markets. Many of the funds and asset managers included in this report suffered declines in their asset values, along with conventional investment managers and the market as a whole.”

Still, there are signs that SRI stands to benefit from the crisis, which was caused, in part by a failure to understand the fundamental environmental, social and governance (ESG) trends driving corporate prospects, the report states.

Ellmen says asset managers are looking for new risk management tools that will provide early identifiers for issues such as executive compensation, a key element of most governance screens.

“I think that over the long term, asset managers, pension funds and mutual funds are going to want to embrace SRI as a way of identifying problems like the ones that were at the root of the crisis in 2008.”

The future of SRI
Ellmen says the so-called mainstreaming of SRI will ultimately lead to analysts incorporating ESG factors as part of their standard valuations of stocks and other investments.

“Asset managers will engage with companies on issues like climate change, conflict minerals, human rights and other reputational issues. They’ll engage with management to identify these problems and work with management to rectify those problems.

The traditional way of doing SRI – to focus on best-of-sector and negative screens – I think that’s going to gradually give way to a more comprehensive and integrated approach by asset managers.”

The SIO is continuing its ongoing campaign to educate advisors about SRI. “We have been out to about ten Advocis chapters, so it’s a real ground campaign, meeting advisors one at a time, and we’re going to continue that through the end of 2011.

We’re also looking at a new program with the Responsible Investment Academy in Australia to create an online SRI wealth management course. That will make it a lot more efficient to get out to advisors.”

Doug Watt is an Ottawa-based writer and editor and co-founder of SRI Monitor, a blog on socially responsible investing.

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

Join us on Twitter

Add a comment

Have your say on this topic! Comments that are thought to be disrespectful or offensive may be removed by our Benefits Canada admins. Thanks!

* These fields are required.
Field required
Field required
Field required