ESG Moves Into Mainstream
Fund managers said environmental, social and governance factors have moved into the mainstream as the latest Eurosif survey said socially responsible funds are growing faster than the broad European market.
Ryan Smith, head of corporate governance at Kames Asset Management, said on a panel at the Thomson Reuters Lipper Alpha Expert Forum yesterday: “ESG has moved into the mainstream as you can now find renewables and energy efficiency in all funds.”
Andrew Parry, head of equities at Hermes Asset Management, said on the panel: “Why would you not use ESG ? There is evidence that good ESG leads to good sustainable returns.”
Parry added there has been a huge increase in ESG disclosures as companies have begun to realise they can affect their ratings. However he also warned that big companies may turn sustainable reporting into a cynical box-ticking exercise without embedding ESG in their daily procedures. “There is lot of green washing of reports,” he said.
Smith said ESG disclosure was growing most quickly in Asia and there a lot of good companies in the region for ESG investments. He added that smaller companies may be more sustainable but they tend to make less disclosures than big companies.
Wolfgang Pinner, chief investment officer of responsible & sustainable investing at Raiffeisen Capital Management, said on the panel: “15 years ago the focus for ESG was on excluding stocks but now it has been integrated into investment process.”
Smith added that moving away from exclusions gives ESG managers a greater opportunity set.
Pinner said: “The French also have introduced legislation which will change the situation in Europe.”
At the beginning of this year France enacted domestic legislation, Article 173, on new green portfolio disclosure requirements for asset managers and asset owners that have to be put in place at fund level by the end of next year, or firms have to explain why the data is not being shown. The three new measures relate to ESG, covering how companies operate, their greenhouse gas emissions and whether the companies contribute to the low-carbon economy.
Eurosif said in its latest report: “The recent Article 173 of the French Energy Transition Law clearly shows how legislation, at a country level, can be a game-changer for the industry. It makes clear quite how much this urgently needed legislation at national level can positively influence European dynamics.”
The Brussels-based association for the promotion and advancement of sustainable and responsible investment across Europe published its seventh biennial market study this week.
The report said sustainability themed investments have grown by 146% over the past two years, ranging from 30% for stewardship (engagement and voting) to 385% for impact investment.
Eurosif said: “SRI is growing faster than the broad European investment market (25%) with retail investors returning to the market (up 549% since 2013).”
France had the most sustainable assets under management in at €43bn.
The report said there have been a shift in SRI assets from equities to fixed income, driven by the growth in the issuance of green bonds.
Flavia Micilotta, Eurosif’s executive director and Will Oulton, Eurosif ad-interim president, said in the report that the green bond market has broken through the $150bn barrier and France and Finland have become the first states to issue green bonds.,
“Similarly, this growth has underscored the need for a higher degree of clarification and harmonisation, and green bond issuance is creating a framework within which bond markets can become the instrument of a wider collective action to push further the accountability of environmental finance,” added the report. “This is an excellent sign and it helps speed up the process of transformation that our economy should be moving towards, although there is still a long way to go before it reaches the scale needed to address climate change and the other pressing environmental issues.”
Data for survey was collected from January to June 2016 across 13 European markets. In total, 278 asset managers and asset owners with combined assets under management of €15 trillion participated, which Eurosif said represented market coverage of 81%.
Invest Europe, the trade association for European private equity and venture capital, today published an ESG due diligence questionnaire for private equity Investors and their portfolio companies. The questionnaire covers areas such as environmental impact, health and safety processes, human rights and labour standards across a company’s operations and supply chain.
Marta Jankovic, senior sustainability and governance specialist, head of ESG integration alternatives at APG Asset Management, and chair of Invest Europe’s Responsible Investment Roundtable, said in a statement: “Not all portfolio companies are on the same page when it comes to ESG factors. The more we can help fund managers and investors identify the potential issues and opportunities in the investment process, the more we can promote high ESG standards across the board.”
More on ESG:
Do conflicts of interest in trade routing and execution impact market quality?
Emerging technology presents challenges and opportunities for the buy side.
Greenwich Assoc estimates the industry will spend $700 million in 2018.
Federated will pay £246m for a 60% interest.
The success of the European asset management business is threatened.