Why socially responsible investing is taking off
Dec 5, 2013 @ 12:00 am
Barbara Krumsiek, president and CEO of Calvert Investments Inc. on the forces that have helped drive socially responsible investing assets to $3.74 trillion in the U.S.
Hello, and welcome to this edition of Wealthtrack, which we are delighted to be taken once again at the Museum of American Finance in the heart of Wall Street. I'm Consuelo Mack. Over a year ago, we did a two-part series on Socially Responsible Investing, a growing area of interest among governments, institutions and individuals around the world. But turns out the momentum towards SRI, now also known as Sustainable and Responsible Investing is building the most recent comprehensive count done in 2012 showed the total SRI assets in the US have reached nearly $4 trillion. A 22 percent increase since 2009 and a 486 percent jumps since 1995 when the size of the US Sustainable and Responsible Investing market was first measured. Individuals and Institutions interested in SRI focus investing have many more choices. The number of mutual funds, ETFs and other pool products that incorporate environmental, social and corporate governance criteria have exploded from 55 vehicles in 1995 to 720 by 2012 and their assets have grown from $12 billion to over $1 trillion. But what about performance probably the most frequently asked question about this approach? Well, compared index to index, SRI is more than holding its own. The MSCI hail deep 400 social index, which is based on domini 400 social index, one of the first Social Responsible Investing indexes has delivered 10 percent annualized returns since its 1990 inception outperforming the SMP 500 for the same time period. Well, this week's guest is a financial fought leader in the field. She is Barbara Krumsiek, President, CEO and Chair of Calvert Investments, which she has won since 1997. I began her interview by asking Krumsiek, why the amount of money flowing into Sustainable and Responsible Investing is taking off. -I think there are few drivers, the asset owners, the stay pension funds and corporate pension funds have really woken up to the fact that environmental and sustainable factors are very important to investment performance. And in fact, there's been a explosion of interest and principles for responsible investment on the part of asset owners. Secondly, companies are seeing that this is good business to be sustainably invested in their products and in their markets. And therefore, I think there's the potential for good returns and for good outcomes. Third is engagement. The assets that we count in under Sustainable and Responsible Investing almost four trillion as you as up 22 percent four years include assets that are being actively govern by the asset owners to proxy voting-- really, very, very different kind of engagement by asset managers and asset owners to really improve the performance of companies. So those three I think have really contributed. -When I was looking at the guiding principles of Calvert, it basically said that investment returns from responsible corporate behavior are inextricably linked. -Uh-hmm. -So, where is the proof that basically, that the investment performance and responsible corporate behavior especially the kind of really high standards that you're setting for companies are linked, that are really makes a difference? -Well, there have been a number of studies that have looked at single issue. -Right. -And have demonstrated that. For example again, diverse-- companies with diverse ports outperformed, McKenzie has done a study along in these lines as catalyst to women's research organization. In terms of the comprehensive, we believe, for example, looking at the Calvert Social Index, which is a broadly diversified index of companies that have satisfied our seven criteria. -Right. -That our index has outperformed the SMP by over 2 percent this year. -Uh-hmm. -And it is certainly an index that may over-- different points and time underperform or outperform but overtime will at least perform at or above the unscreened index, the SMP 500. -Right. One of the criticisms of Social Responsible Investing from investor return point of view has been that in fact that these funds that you're giving up some performance-- so what is your-- what do you tell us about performance and what we should expect in Social Responsible Funds. -Well, our expectation for ourselves-- -Yeah. -in our asset management, the funds we offers Calvert funds is that we will perform at or above benchmark averages. -Okay. -Now, this may not occurred day and day out. But over longer periods of time we do expect that. We, at any point and time do have some funds that are outperforming and are delivering good returns. So we're very hardened by the performance of the index. We certainly think that is the universe of stocks from which one can select. You can really create outperforming or performing at or above index averages through this universe.