Yale Champions Social Investing (Whatever That Is)

Socially responsible investing just received a big endorsement, but what it really needs is some clarity.

Yale University announced last week that its endowment might exit private investments it deems unethical, extending a policy it has long applied to investments in public markets. In fact, the university counts itself among SRI’s pioneers. Its ethical investment policy declares that “Yale was one of the first institutions to address formally the ethical responsibilities of institutional investors.”

Given the influence of Yale’s $29.4 billion endowment — second in size only to Harvard University’s $39.2 billion trove — the announcement will undoubtedly raise SRI’s profile. But SRI and the broader sustainable investing industry have never lacked attention. As my Bloomberg colleague Eric Balchunas recently pointed out, sustainable investing enjoys “to-die-for PR that eludes most categories.”

That attention hasn’t yet translated into investment, however, at least as judged by flows to exchange-traded funds. Just $6.6 billion of the $3.5 trillion in ETFs, or 0.2 percent, is invested in the category. Balchunas offers fund providers some sensible tips for sparking more interest, including lowering fees, choosing snazzier names, offering more concentrated portfolios and preaching to a broader audience.

But the industry has a more fundamental problem: Investors are lost among the various styles in the sustainable investing zoo. If the industry wants to attract investors, it must first explain what it has to offer.    

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