Responsible Investment: From Niche to Mainstream
29 May 2013 at 10:28 am
A new report has set out a number of challenges that must be overcome if Responsible Investment is to move from niche to mainstream.
The European Responsible Investing Fund Survey was carried out by KPMG on behalf of the Association of the Luxembourg Fund Industry (ALFI) and found that Responsible Investment (RI) funds are showing strong growth with assets under management increasing by 19% from €199.9 billion to €237.9 billion since 2010.
“ALFI believes that Responsible Investment is the start of a tectonic shift that will ultimately create a new landscape and set new norms for the industry,” Marc Saluzzi, Chairman of ALFI said.
“There are many different strands to Responsible Investing movement and the overall picture is unclear. If we are to foster the movement, a first important step is to clarify the definitions and understand the size of the market.”
“It is an exciting area and it is steadily gaining momentum with investors showing a growing interest in investment strategies that integrate Environmental, Social and Governance (ESG) criteria into their investment process,” Nathalie Dogniez, head of Investment Management KPMG Luxembourg.
“With RI investors progressively becoming more demanding, the focus on ESG matters and well-implemented responsible investment processes is likely to continue.”
The five action points resulting from the survey for RI to move from niche to mainstream are:
- Asset managers should pursue their efforts towards transparency and measurement both at company and product level
- ESG information providers should more explicitly link their research to investment value drivers and demonstrate the materiality and concrete consequences of their findings in terms of investment performance
- The European Commission and national regulators must take meaningful steps towards rules on non-financial information disclosure by companies
- Investment industry associations must work together to encourage the harmonisation of the various national transparency initiatives in order to avoid creating confusion for investors and duplicate work for asset managers
- Responsible investing organisations should push forward the verification of information and data provided by asset managers in order to avoid self-declaration and subjective information.
Other findings of the survey include:
- Whilst there has been an increase in carbon, social/solidarity, microfinance and ethic funds, there has been a decrease in environmental/ecological, renewable energy/climate change, and water funds. This can be explained by the effects of the financial crisis which, combined with the lack of international commitment to tackle climate change, lead investors to drain from these funds. Between 2010 and 2012 AuM of environmental themed funds decreased by 10.5% to EUR 28.1 billion;
- Nearly two in three RI funds do not have a thematic focus. They either apply a positive or a negative screening. These funds represent 83% in terms of AuM.
- Thematic funds (i.e. those with an environmental, social or ethical focus) represent approximately one third of the RI funds landscape in terms of number of funds, but only 12% of the AuM; Funds investing in environmental themes remain the biggest portion of thematic funds in general