The recently published 2016 report on SRI growth trends across 13 countries from Eurosif – a leading umbrella association of national sustainable investment forums in Europe – indicates a broad-based expansion of sustainable investment practices and strategies.
Exclusions – the avoidance of investing in companies involved in activities such as weapons manufacturing, tobacco, nuclear power, pornography, gambling and alcohol – remains the dominant SRI strategy with over EUR 10 trillion in assets under management (AUM), representing some 48% of the total of European professionally-managed assets.
Impact investing the most promising approach
However, the fastest growing strategy is impact investing – into companies or funds with the aim of generating a measurable, beneficial social or environmental impact as well as a financial return. This almost quadrupled in size over the period 2013-2015. The Eurosif study notes that impact investing remains “the most dynamic and definitely the most promising approach for investors”.
While institutional investors have long led the SRI market and continue to do so, the retail sector is quickly making up ground, having risen from 3.40% to 22%, which Eurosif says signals “an important shift in the industry and greater focus on other categories of investors”.
Surge in green bonds
Also changing is the asset allocation mix in SRI investment. Whereas equities had in the past dominated, the latest Eurosif study shows a significant fall in that asset class, down to 30% of total SRI assets from 50% the previous year – due to a big increase in bonds, now at 64% from the 40% registered in December 2013. This rise appears to correlate with the surge in green bonds.
In 2015, green bond issuance totalled more than USD 40 billion and has the potential to reach USD 100 billion, according to CBI (Climate Bonds Initiative) estimates.
Renewable energy and energy efficiency were the top categories of sustainability themed investment strategies, growing by 146%, no doubt benefiting from the greater awareness of the implications of climate change, especially following COP21 and COP22 in Paris and Marrakesh in the past two years. France registers the most significant growth in this area (+881% over 2013-2015), followed by Spain (+264%).
Norms-based screening tops EUR 5 trillion
Norms-based screening is the second biggest SRI approach, with over EUR 5 trillion in AUM, a steady growth rate of 40%, and indeed a sustained annual growth of 31% since 2009. Norms-based screening allows investors to assess the degree to which each company they invest in respects issues that impact environmental, social and governance (ESG) criteria by adhering to global norms – such as the UN Global Compact – on environmental protection, human rights, labour standards and anti-corruption. The Nordic markets have led in this area in the past, but France is now at the head, with EUR 2.6 trillion in AUM, while Switzerland has shown the biggest growth, at 618% over the last two years.
In the area of companies’ fiduciary duty, engagement and voting involvement by investment managers grew by 30%. The UK continues to be the undisputed leader in this with a growth rate of 50% (2013-2015) and over EUR 2.5 trillion in total AUM. The significant policy drive for this strategy is underscored by the debate around the Shareholder Rights Directive (SRD), as part of the European Commission’s action plan to modernise 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.
Fiduciary duty considerations have been recognised as a main driver for SRI, sending a strong message to policymakers. In the fiduciary duty debate, fund managers have come to see ESG considerations as part of their investment obligations in line with their fiduciary duty.
Written on 17 April 2017
A full copy of Eurosif’s 2016 SRI study is available free of charge here
For more on SRI at BNP Paribas Asset Management, go here
For more on corporate social responsibility at BNP Paribas Asset Management, go here