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Eurosif
The 7th edition of the SRI Study (2016) of Eurosif highlights the scale of Sustainable and Responsible Investment practices and trends in Europe and across 13 European countries. For the first time, the Study provides new detailed insights on Exclusions, Impact Investing and Environmental, Social and Governance (ESG) integration practices.
Some of the Study’s most important findings include, among others:
- Exclusions are still the most popular SRI approach with over €10 trillion of assets under management, showing a 48% increase.
- Impact Investing is the fastest growing SRI strategy with €98 billion, up from only €20 billion in 2013.
- Norms-based screening has now become the second most significant SRI approach with over €5 trillion Assets under Management and a growth rate of 40%.
This 2016 European SRI Study bears out the sustained growth in SRI across different approaches. The data collected for this Study, at the end of 2015, allowed us to cover institutional and retail assets from 13 different European markets. The methodology was modified for some minor aspects, as a few simplifications were brought to the SRI questionnaire; but the taxonomy remains unchanged from 2012.
Some of the main growth trends highlighted in this edition have built up consistently over the past years. However, it is worth noting a number of interesting shifts. Exclusions remains the dominant strategy at over €10 trillion, covering 48% of the total of European professionally managed assets1 .
Meanwhile, Impact Investing is once again confirmed as the fastest growing strategy with a growth of 385%. Although the growth remains small in terms of assets, it has made Impact Investing, once more, the most dynamic and definitely the most promising approach for investors. This year we featured a special focus section on Green Bonds, which have characterized much of the growth in the bond market in the last two years. In 2015, the total Green Bond issuance amounted to over $40 billion2 . At the time this Study went into printing the Green Bond issuance had already reached $44 billion, with a potential to reach $100 billion3 , according to CBI (Climate Bond Initiative) estimates.
Impact Investing is followed by Sustainability Themed investments this year, with a remarkable growth of 146%. France registers the most significant growth (+881% over 2013-2015), followed by Spain (with 264%). This marks a significant change as this strategy registered the slowest growth during last review, at 22.6%. Renewable Energy and Energy Efficiency have been the top categories of investment for this strategy, which have benefitted significantly from an increasing awareness of the implications of climate change, as well as the impact that key international events have had in the past two years.
Norms-based screening is the second biggest SRI approach with over €5 trillion in AuM and a steady growth rate of 40%, demonstrating a sustained growth per annum of 31% since 2009. Typically this approach’s main area of growth is the Nordics, but this year, France leads the way with €2.6 trillion in AuM, confirming a positive trend already reported in the previous Study. Switzerland shows the biggest growth at 618% over the last two years.
The increasing relevance in stewardship and the ever more present debate around fiduciary duty, which continues at the European level, have given further impetus to Engagement and Voting, which grew by 30%. The UK continues to be the undisputed leader in this space with a growth rate of 50% (2013-2015) and over €2.5 trillion in total AuM. The significant policy drive for this strategy is underscored by the debate around the Shareholders Rights Directive (SRD), as part of the Commission’s action plan to modernize corporate governance and increase corporate transparency. The aim of the Directive is to increase shareholders’ ability to demonstrate further accountability and engagement – both characteristics which underpin SRI.
In the 2014 Study, Eurosif attempted to devise ESG integration categories to refine the framework around this strategy and categorise the different approaches used by asset managers. However, due to the many variables around the features that influence integration and the risk of overlap, we decided to discontinue the previous methodology and consider the approach as a whole and not on a country level.
Although institutional investors still lead the market, we noticed with interest in this year’s Study that the retail sector is growing and going up from 3.40% to 22%, signalling an important shift in the industry and greater focus on other categories of investors.
The asset allocation distribution registered a significant decrease in equities, now at 30% of the total SRI assets down from last year’s 50% and in favour of a sharp increase in bonds, now at 64% from the 40% registered in December 2013. This rise correlated with the surge in Green Bonds, underlining the climate concerns that were intensified by events such as the Paris COP21 Agreement.
Qualitative questions were also included to address the factors influencing investors’ demand for SRI and their SRI strategies, as well as their perspectives on the legal requirements on ESG disclosure. This year, we also asked our respondents to explain the main limitations for their SRI strategy work. Fiduciary duty considerations have been recognised as a main driver for SRI, sending a very strong message to policy makers. In the fiduciary duty 8 debate, fund managers have come to see ESG considerations as part of their investment obligations in line with their fiduciary duty.
Concerning the top challenges for SRI for investors, we find that the top reason is linked to a theory that can now be considered largely disproved. The concern that integrating ESG factors in the investment strategy could negatively affect returns is, to some extent, the flip side of the fiduciary duty considerations that we find on the top of the list of our drivers. Increased awareness on topics such as climate change, brought by landmark events such as COP21 have once again reminded the whole investor community of the gravity of these environmental risks. These risks are so serious and pervasive that fiduciaries have a duty to specifically consider the associated financial risks. As highlighted in the eye-opening report of the Advisory Scientific Committee group of the European Systemic Risk Board (ESRB), “Too late, too sudden: transition to a low-carbon economy and systemic risk”, published in February 20165 , a late transition to a low-carbon economy could have dire implications for systemic risk. At such interesting times, policy-makers have an opportunity to steer the international debate and send the right messages to the investment community.
The Eurosif 2016 SRI Study reports on the development of trends and dynamics and the direct correlation to the ever changing European policy agenda, which continues to shape the debate around finance and more sustainable economies. We have tried to capture the essence of this change and provide a platform for discussion on the most salient topics around SRI.
Download the Study in full here (pdf) or read online
