As the market for socially responsible investment (SRI) continues to grow, financial advisors should be prepared to address this topic with clients, according to Eugene Ellmen, executive director of Social Investment Organization.
Speaking at the Canadian Institute of Financial Planners’ annual conference in Vancouver on Monday, Ellmen said a growing number of Canadians are approaching their advisors for information about SRI – an investment style that brings into consideration environmental, social and governance factors.
“It is something that clients are talking to [advisors] about on a more frequent basis,” he said. “We very much believe that the SRI train is leaving the station, and your clients expect you to be on it.”
Figures from Social Investment Organization – the national association for SRI in Canada – show that the trend is gaining momentum around the world. In the U.S., SRI assets grew to US$3.07 trillion at the end of 2009 from US$2.7 trillion in 2007, Ellmen said. In Canada, SRI assets grew to $530.9 billion in 2010, up from just $51.4 billion in 2002. Total Canadian assets invested according to SRI guidelines represented about one-fifth of assets under management, according to Ellmen.
Contributing to the growth of SRI in the past couple of years is heightened attention to such controversial environmental issues as the Northern Gateway Pipelines Project proposed by Calgary-based Enbridge Inc., which has elicited fierce opposition from environmentalists.
High profile issues like this one “begin to have an impact on investors and they way that investors think about their investments, and cause them to think about how they can relate these larger mega-trends that are going on, into their individual portfolios,” said Ellmen.
Research shows that many Canadians are interested in investing in a socially responsible way, partly because they believe this approach could be financially rewarding. In a survey of 4,300 Canadians conducted in 2009 by Hoggan and Associates, 71% said they believe companies that are socially responsible are more likely to be profitable over the long term.
Historical performance shows that in many cases, investments managed with an SRI approach do indeed outperform other investments. According to an analysis of Canadian equity mutual funds by Socially Responsible Organization, five out of six SRI funds outperformed the average Canadian equity fund in the five years ended in March 2012 and four out of four SRI funds with a 10-year track record outperformed the category average.
“Across the major asset categories, socially responsible investments are performing strongly, and in many cases, there are funds that outperform the market,” Ellmen said.
He urges advisors to educate themselves on SRI in order to prepare for questions they may receive from clients as the trend continues to gain momentum. And by addressing the topic, Ellmen said advisors could get to know their clients in a more meaningful way.
“We do think that SRI is an opportunity for you to build a deeper, more holistic relationship with your clients, to tap into some of your clients’ deep-seated values about society and about the world,” he said.