(July-2002) Report forecasts lower SRI returns
Investors in socially responsible investments (SRIs) will lose about 0.7 per cent a year on their investments compared to mainstream investments, according to a new report.
The report, authored by Paul Ali and Martin Gold from Stellar Capital and published in conjunction with the Centre for Corporate Law and Securities Regulation at the University of Melbourne, investigated whether it is possible to “invest for good” without any financial sacrifice.
The report was based on analysis of seven years worth of returns which tested the effects of omitting shares that operate in industries that are normally deemed to fall outside SRI funds. These industries include alcohol, armaments, gaming, pornography and tobacco.
The authors state that the size of the SRI market is more than $1.9 billion and with the rising uptake of SRI strategies by fund managers, the forecast for growth is strong. However, this growth has not been matched by a system to measure either SRI returns or their investment strategies, which has led to significant differences in the approaches used to construct SRI portfolios.
According to the researchers, some funds don’t actually exclude companies that are undesirable but rather have a lower weighting to those shares relative to capitalisation in the market. They also found that 56 per cent of managers use only a negative screen to reject investments, using set criteria. Only a third of the market utilises a mix of positive and negative screens and nine per cent of funds use a positive screen only.
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