Forget the hoopla over exchange-traded and emerging markets funds. If there's one new, significant development in the world that the U.S. mutual fund industry should take advantage of through the launch of new funds, it's the increasing worry over global warming.
Assets in socially responsible investing (SRI) funds have quadrupled from a mere $639 billion in 1995 to an estimated $2.5 trillion this year, and more mainstream asset managers are embracing the concept. But those assets could be significantly higher.
Many investors are still not familiar with the idea of applying ethical and social ideals to their holdings-and, astonishingly, many SRI funds don't embrace environmental concerns.
Traditional asset managers, and even SRI specialists, for that matter, could bring SRI funds into a crystal-clear, highly desirable focus by making climate protection one of their key concerns, for it cannot be denied: green is mainstream.
Mercer Investment Consulting surveyed investment managers around the world last year and found that they expect corporate governance, globalization, climate change and sustainability to become more important to investors in upcoming years. In fact, the Progressive Investor newsletter compares the oncoming "clean technology era" to the rise of the telecommunications industry in the early 1980s, noting that the $30 billion invested in renewable energy last year comprised nearly 25% of the total invested in the energy industry worldwide.
Just this year, a number of mainstream asset managers launched environmentally focused funds, including Allianz Global Investors, DWS Scudder, Deutsche Bank, HSBC and Virgin Money. Investment firms have even unveiled a number of global indexes, including KLD Research's Global Climate 100 Index, which selects companies for their involvement in renewable energy, future energy fuels, clean technology and energy efficiency. A year ago, Forward Management, advisor to the Sierra Club Mutual Funds, launched a large-cap environmental index, which it called the first of its kind. Even Merrill Lynch recently launched a global Energy Efficiency Index. But so far, green-focused SRI funds are not a discernable trend. That is likely to change, however, and it will be the forward-thinking mutual fund companies that will lead the way.
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