Credit crunch puts the squeeze on SRI sector

Market acceptance of socially responsible investing (SRI) has taken a hit in the wake of the credit crunch and global market volatility, but 2007 still represented a landmark year, according to the latest Lonsec SRI sector review.

The review, released exclusively to Money Management, resulted in just one fund, the BT Wholesale — Ethical Share Fund, gaining Lonsec’s premium ‘highly recommended’ designation, with three other funds gaining a ‘recommended’ rating — the AMP Capital Sustainable Share Fund, the Challenger Wholesale Socially Responsive Share Fund, and the Perpetual Wholesale Ethical SRI Fund.

Where international equities were concerned, the three funds reviewed — the AMP Capital Responsible Investment Leaders International Share Fund, the Hunter Hall Value Growth Trust, and the Hunter Hall Global Equities Trust — each gained a ‘recommended’ rating.

Lonsec said the BT fund gained its highest rating because the ratings house had a high regard for BT’s large cap Australian equities investment capability and, while the portfolio manager of the fund was at the beginning of his portfolio management career, he had made encouraging progress and was effectively harnessing the benefits of the large cap process.

Lonsec said the SRI sector overall enjoyed a strong rise in investor interest in 2007.

“This is evident not only in the 43 per cent growth in managed responsible investment funds to $17.1 billion during the 2007 financial year, according to the Responsible Investment Association Australasia, but more broadly in terms of community and industry interest,” the Lonsec analysis said.

However, it said it was probable that the current financial crisis had somewhat decelerated the industry’s progress in 2008 and likely led to lower growth in assets under management.

“Generally, this is the case in most of the SRI funds covered by Lonsec, though some managers did manage to increase their funds under management through this

turbulent period,” it said.

The ratings house said it was seeing more evidence that some traditional managers were beginning to think about how environmental, social and governance factors were likely to affect share price

performance.

“This practice continues to gain traction in light of the broader acceptance of climate change as an environmental threat, which brings with it previously unidentified risk and opportunities,” it said.