Responsible investment ‘mainstream by 2015’ – report

www.environmental-finance.com
London, 30 October:

Responsible investment will account for between 15-20% of global assets under management (AUM) by 2015, and generate revenues of around $50 billion, according to a report by Robeco and Booz & Company. The market is set to grow by 25% per annum over the coming years, rising from 7% of AUM in 2007 – but margins are set to tighten as the investment niche becomes 'mainstream', the report predicts.

"Responsible investment is becoming more and more significant in the investment world, with raised social awareness and improved performance factors, as well as the fact that pension funds and other institutional investors are increasingly required to disclose their policies and positions," said Charles Teschner, a partner at Booz & Company, a US-based management consultancy.

Responsible Investing: A Paradigm Shift identifies several drivers likely to accelerate uptake of responsible investing, including increasing awareness of environmental issues by companies, legislation favouring socially responsible investment, and innovations in environmental technology.

The report predicts that the trend "will significantly reshape the asset management landscape over the next few years", noting that many larger fund managers have yet to pursue opportunities in responsible investment. "By 2015, niche players are likely to be taken over by global players or grow themselves to become sizeable specialists."

The mainstreaming of responsible investment will see margins tighten, the report says. It suggests that premiums that asset managers can charge for running environmental and social engagement strategies will shrink from 3 basis points (bps) in 2007 to zero, while negative screening margins will drop from 15 bps to 5 bps. The integration of environmental and social investment research will command a premium of 3 bps, down from 10 bps.

Market growth is forecast to be particularly rapid in Asia – there, responsible investment AUM are predicted to grow more than 150% per annum, from a low base of just 2% of AUM in 2007. In the US, where responsible investment already accounts for 10% of assets, the report forecasts 17% annual growth.

George Möller, CEO of Dutch asset manager Robeco said: "There is a paradigm shift in the market. As the responsible investment market continues to grow, Robeco's increasing adoption of responsible investment throughout its fund portfolio reflects our view of the significance of this shift and will position us for a major change in the investment industry landscape over the next few years."