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Investors Don't Align Investing And Ideas

Investors really want to put their money into socially responsible mutual funds, according to a new survey. So why aren't they?

Investors really want to put their money into socially responsible mutual funds, according to a new survey. So why aren't they? The poll, commissioned by socially responsible mutual fund firm Calvert, raises a whole host of questions about the divergence between people's perception of socially responsible investing, and reality.

Querying mutual fund investors who've bought at least one fund outside of an employer-sponsored plan, the survey found that 54% of those who didn't have any money in SRI's were interested in investing in them, up from 40% in 1999. What's more, 52% think that SRI funds make at least some impact, especially in the areas of product safety, corporate honesty, environmental safety and fairer wages. Of course, investors are also concerned about the bottom line, but that wouldn't deter them from socially responsible investing: 52% of respondents believe SRI funds provide superior returns, and 55% think they carry lower risk.

In the decade between 1995 and 2005, SRI assets in the U.S. grew at a faster rate than any other managed asset, accounting for about one out of every 10 invested dollars in the U.S, according to results of new study by the Socially Responsible Investment Forum released today.

In spite of that relatively rosy outlook, only 11% of respondents are actually invested in SRI funds, and by some measures, only 2% of the investing public is in a SRI. One reason, according to Calvert's Reggie Stanley, is that 39% of the public "consider themselves socially responsible" investors.

"While many people think that they are investing in socially responsible funds," Stanley, the firm's chief marketing officer, explained during a conference call, "if they really look under the hood, they'll find that far fewer of their mutual funds are actively looking at these issues, are actually voting their shares and their proxies in a way that would be consistent with what we believe would be a broader view of their fiduciary responsibilities."

"When I discuss the idea of SRI with clients, many will say, well, yes, I'm very interested in the environment or in scrutinizing corporate behavior more closely," notes Paul Ellis, a financial adviser with Ameriprise Financial Advisors in Fishkill, N.Y. Ellis adds that the notion of SRI is just beginning to gain investor awareness.

So what's next? The SRI industry needs to "figure out where there are opportunities to explain what we do better," Stanley says, adding that "we have already begun a pretty aggressive look at ways to bring that more to the fore."

On the bright side of the poll's main finding, Hal Quinley, v.p. at Segmentation Co., which conducted the survey for Calvert, notes that means there are five times as many potential clients as there are today.

Certainly helping the marketing effort is the perception that SRI funds are effective both as investments and as instruments of corporate change. "There certainly is an increasing concern about corporate behavior," Quinley says, adding that "a major finding in this study is that people think there funds make a difference."

On that count, it is hard to know whether believers are deluded or deft: Certainly, SRI groups have been making some more noise in recent years, with some notable victories – new environmental policies from Goldman Sachs and WalMart, for example. Yet their overall impact is difficult to measure.

As for the belief that SRI funds make for superior investments, while that may be overstating things to some extent, investing (socially) responsibly does not necessarily mean being financially irresponsible. In August, The Wall Street Journal found that over a 10-year period SRI funds posted an annualized return only 30 basis points less than the average U.S. stock fund. So while they may not be better investments, per se, they aren't a sure-fire money-loser, either.

But is that enough to get the interested hordes to take the plunge? The skeptics will chortle; human beings have a remarkable capacity to believe they are doing the "right" thing when, in fact, they're not, as the discrepancy between those who think they are socially responsible investors and those who actually are will attest.

 The less Hobbesian will see the raft of corporate scandals as an opportunity not to be missed. One thing is clear: If the SRI guys are successful, they can use their newfound wealth to make the perceptions about effectiveness a reality.

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