European SRI market’s growth signals change in investor mindset

The sixth biennial Sustainable and Responsible Investment Study from the European Sustainable Investment Forum (EUROSIF), the leading pan-European Sustainable and Responsible Investment (SRI) membership organisation spanning institutional investors, asset managers, index providers and Environmental, Social and Governance (ESG) research firms, has for the time provided detailed insights on Exclusions, European Impact investing and ESG integration practices across thirteen countries from Austria to the UK.

The 72-page SRI study, first conducted in 2003 and sponsored by Edmond de Rothschild Asset Management, Generali Investments Europe, Inrate AG and Nordea Asset Management, noted that Exclusions (or negative screening) - a strategy involving removing companies or sectors from the investible universe of a portfolio - are going “mainstream”.

François Passant, EUROSIF’s Executive Director in Brussels, commenting said: “The continuous growth of SRI practices in Europe signals a positive change in attitudes toward stewardship and the materiality of ESG matters.”

He added: “Discussions are shifting from whether SRI makes sense or not from a financial return standpoint, to how its tangible impacts can be measured. Increasingly, investors and other industry stakeholders will push the market in this direction, bringing it to a new level of maturity.”

That said, the latest study notes that “no single harmonised and operational European defi­nition of SRI” currently exists and therefore does not impose a specific definition of SRI. As such it continues to cover “any type of investment process that combines investors’ financial objectives with con­cerns about ESG issues.” Nevertheless it points to several initiatives in France, Italy and Germany that have been set in motion (or are still in the process) to define what SRI is more specifically.

Assets subject to exclusion criteria grew according to the findings by a stellar 91% between 2011 and 2013 and cover an estimated 41% (€6.9 trillion (trn) of European professionally managed assets. Exclusions cover more assets than any other SRI strategy and have the most consistent usage across Europe.

Voluntary exclusions related to Cluster Munitions and Anti-Personnel Landmines (CM&APL) were found to be the most common covering about 30% (€5.0 trn) of the European investment market. Other Exclusion assets, not related to CM&APL, account for about 23% (€4.0trn) of the market.

For the first time, the study provides a growth figure for Impact investing, which was found to be the fastest growing strategy in Europe (+132% since 2011) and now estimated to be a €20 billion market. Key markets for this strategy are the Netherlands and Switzerland, accounting for an estimated two thirds of European assets, followed by Italy, the UK and Germany. Separately, almost 40% of ESG integration assets now follow structured investment processes and incorporate non-financial criteria.

Against the backdrop of this growth, the study describes a number of “market failures or challenges”, for example “wide variations in adoption of SRI practices across countries, the weakness of the retail SRI market and the under-utilised potential of Sustainability themed in­vestments given their potential to closely align with certain public policy objectives.” As such legislation will continue to “play a key role” in addressing such market failures, EuroSIF said.

EuroSIF’s latest study, which can be downloaded via www.eurosif.org, contains three case studies (on Norms-based Screening at Etica SGR, The Social Stock Exchange and the Threadneedle Social Impact Bond Fund) as well as thirteen focuses including Fostering Greater Transparency of the European SRI industry and New SRI Definition and Label.