Domini: Wall Street brokers doing their own ESG work seem the most likely evolution. Yes, they were quick to drop the departments, but between academic work indicating that this information helps, and legal work indicating it is important to look at, I imagine these departments will re-form.
Budde: While there is certainly evidence of increased interest in ESG factors, a lot of it is quite superficial and easily lost in the midst of the thousands of other variables that mainstream analysts and portfolio managers consider. And while I think this mainstreaming seems destined to continue, it has a long way to go before it fundamentally alters mainstream investment processes to the point where they will help facilitate progressive change on important ESG issues.
Robinson: A lot of companies that never thought about sustainability before are now implementing programs. While they are less than perfect, the fact is they are going to drive more interest and dollars. It's a rising tide.
Krumsiek: We think raw data services will eventually become a commodity-much like regular financial data. SRI firms will distinguish themselves on the higher-level analysis that will help drive stock decisions and advocacy strategies. We've already seen many major mainstream investment firms develop capacity to integrate ESG analysis into their traditional financial analysis. We think this trend will continue. The winners, though, will be those firms that can demonstrate clearly how this translates into a better financial proposition for investors-providing better risk-adjusted returns and higher social impact.
Schueth: What do you think are the key drivers for SRI fund companies going forward?
Keefe: The search by investors for better long-term investment solutions in light of the recent financial meltdown along with the growing awareness and acceptance of ESG among individual and institutional investors.
Krumsiek: On the institutional side, we expect to see demand for more advanced products that integrate ESG research into financial analysis, tackling tough thematic issues like climate change that both generate alpha and reduce risk.
Robinson: Rapidly growing interest in global warming and climate change as well as resource constraints are seen as key drivers to business. Focusing on areas and companies that are part of the solution to those two major categories really make the most sense to be involved in on the investment side. That, in our opinion, will drive performance, which is the key to attracting assets.
Budde: Increasing the range of strategies and products to convince investors that they can have both positive impact and competitive returns. A second factor for excitement might be the increased interest of various mainstream intermediaries who are interested in SRI strategies. For many market channels, involving and convincing these intermediaries of the viability of SRI strategies is crucial.
Steven J. Schueth is president First Affirmative Financial Network LLC, a registered investment advisor. First Affirmative specializes in socially responsible, sustainable and transformative investing, and supports a nationwide network of investment professionals who work with socially conscious investors. First Affirmative also produces the annual SRI in the Rockies Conference. The 21st annual SRI in the Rockies Conference will be November 18-21, 2010. Mr. Schueth is a former director and spokesperson for the non-profit Social Investment Forum. He can be reached at [email protected].