At the beginning of 2011, $80.9 billion was invested in 375 alternative investment funds incorporating environmental, social and governance (ESG) criteria, up from $69.8 billion in 346 funds the year before, according to a recent report, Sustainability Trends in U.S. Alternative Investments, from US SIF, the Forum for Sustainable and Responsible Investment.
Of that $80.9 billion, the report identified 233 distinct private equity and venture capital funds with a combined $33.9 billion. Some $44.3 billion was held by 95 property and real estate investment funds. There were also 47 hedge funds identified with a total of $2.6 billion.
Since alternative investment fund managers won't always disclose assets under management, "my hunch is this is a bigger space than we realize," said Joshua Humphreys, the report's lead author and the director of the Center for Social Philanthropy at the Tellus Institute, during a session at the annual SRI in the Rockies conference last fall.
Nearly three-quarters (73%) of the funds in the study incorporate multiple ESG components into their management strategies. The biggest emphasis is on environmental criteria (represented by $68.9 billion of total assets under management), followed by social mandates ($48.8 billion) and governance criteria ($37.5 billion).
Previous studies also reinforce the idea that the sector is growing and gaining interest, says Meg Voorhes, the deputy director and research director for US SIF. Alternative investments have also gained share in Europe's SRI market, according to research from Eurosif, the European Sustainable Investment Forum.
"Institutional investors have been a large part of the story," says Voorhes, who notes that these institutions have been diversifying more into different asset classes for the past few years and taking their growing interest in ESG with them.
Public pension giant CalPERS has approximately $1.2 billion of exposure to clean technology in its alternative investment management program. The CalPERS Clean Energy and Technology Fund has capital commitments to 14 private equity funds focused on clean tech and energy.
Not surprisingly, however, troubles in the clean energy sector have chased away some investors and funds. The WilderHill New Energy Global Innovation Index (NEX), a commonly used industry benchmark, plummeted 40.2% in 2011.
But alternative investors who remain committed to carbon reduction say they're in it for the long haul, not quick profits. And they share a strong sense of optimism.