ETHICAL INVESTOR.COM.AU

World SRI estimated at $US1.42 trillion
By Ross Kendall 14/9/2001

The value of world’s ethical investment portfolio has been estimated at US$1.42 trillion in the September issue of The Cerulli Edge-Global Edition published by Cerulli Associates, a well-regarded Boston and London based research consultancy.

The report's figures highlight the dominance of the United States when it comes to ethical investment. Funds under SRI management in each region of the world, according to Cerulli, are: United Sates (US$1,350 billion), Canada (US$33 billion), Australia (US$0.5 billion), Japan (US$1 billion), Asia ex-Japan (US$1 billion) and Europe (US$38 billion).

Cerulli reports the vast majority of ethical investment is made by institutions, which account for $US1,391 billion of the total. The remaining $US33 billion is attributed to mutual funds (or collective investment schemes) which is a lot less than one per cent of the global mainstream mutual fund market the report said. It was roughly estimated, however, that ethical investment in mutual funds would grow to $US150 billion by 2005. The projected growth is, in part, based on the introduction of government initiatives, particularly in Europe, that are tying ethical investment policy disclosure to pension products.

The report notes that the UK legislation requiring trustees to declare the extent they take into account ethical considerations in investment decisions has been copied in France and Germany. The Swedish government has also mandated that the national premium pension fund—AP fonden—takes into account the ethical nature of its investments.

Australia became the latest country to introduce a version of this legislation when an ethical investment disclosure amendment was included in the Financial Services Reform Bill that passed into law in August, 2001.

The report cites the French experience where both the number of ethical funds and the level of assets under management have tripled since 1998. A driver for this growth has been their ethical investment disclosure clause, covering employee savings plans, which was introduced in 2000. Ethical funds could account for five to ten per cent of the total employee savings pool in the near future said the report. Total funds in the pool were last measured at 60 billion euros which compares to the current value of ethical investment in France of 1 billion euros ($1.75 billion).

Cerulli reports that Japanese investors are showing greater interest in ethical investments despite slow growth so far. Increasing awareness of environmental issues in Japan—both at the industry and consumer level—has triggered the creation of new ethical funds and their take-up by female investors. Even though women aren’t active mutual fund investors they do control the bulk of the nation’s financial assets, according to the Report.

The report estimates the value of ethically managed funds in Australia at $US 900 million which is below the latest estimate - released by the Australian Ethical Investment Association a little over a week ago - of more than $US5.4 billion. The reason for the large difference is that the latest EIA estimate includes figures for the church sector exceeding $A3.2 billion, and $US1.3 billion voted in local shareholder activist campaigns.

In the US, ethical mutual funds have US$14 billion in assets which accounts for over half of the world’s total while still only a fraction of the US$7 trillion-plus in mainstream retail investment funds. (Interestingly these figures are also apparently at odds with a recent estimate by Pax World Funds that the value of assets in screened US mutual funds now exceeds $100 billion).

Overall, Cerulli reports, the ethical industry has seen assets double since the end of 1998 and is one of the fastest-growing segments of mutual fund market.

The dominant force in world ethical investment, accounting for over 92 per cent of the sector globally, is by US institutions controlling over US$1.3 trillion in assets.

Cerrulli Edge, Global Edition
World SRI estimated at $1.42 trillion (does not include assets held for shareholder Advocacy)
World Institutional $1,391 billion
World Mutual funds $33 billion (total less than 1% of mainstream market)
However, Cerulli estimate that world mutual fund market will grow to $150 billion by 2005, a big increase

United States $1,350 billion (the dominant force in global SRI)
mutual funds, $14 billion (significantly different than SIF report, see below)

Canada $33 billion

Australia $0.5 billion
(EIA figure $5.4 billion - includes church sector and funds for shareholder advocacy)

Japan $1 billion

Asia ex-Japan $1 billion

Europe $38 billion

One of the main drivers behind the growth of SRI is pension fund disclosure legislation

SIF 1999 SRI Trends Report
Socially Responsible Investing in US tops two trillion dollar mark
One out of every $8 under management now invested responsibly

Socially screened portfolios $1.49 trillion
Socially responsible mutual funds $154 billion
Shareholder Advocacy. Over 120 institutions and mutual funds have leveraged assets valued at $922 billion
Portfolios that employ both screening and shareholder advocacy valued at $265 billion
Community Investing. Assets held and invested locally by community development institutions totalled $5.4 billion

see the Cerulli Report, Cerulli Edge, Global Edition, at

http://www.cerulli.com/