Cross-border growth in SRI needs a pan-European code, says Natixis’ Philippe Zaouati

Growth in cross-border distribution of funds has increased the need for investors in SRI funds to have a regional code of conduct to compare portfolios based in different countries, says Philippe Zaouati who heads a responsible investment unit at Natixis Asset Management.

Zaouati, who as deputy CEO of Natixis Asset Management heads its Mirova responsible investment unit, notes such a code already exists for funds within France, his homeland, but this has not yet come to pass at the pan-European level.

“We need to have some transparency code for all SRI because, even if this does not give a unique definition [of SRI], it will at least give a tool for people to analyse and compare one SRI fund in Germany with one in France, for example,” he says.

Zaouati works at the pan-European level on the European Fund and Asset Management Association’s (EFAMA) working group for SRI, which has achieved agreement that “transparency is important”.

EFAMA has agreed on guidelines for pan-European investor information documents to explain SRI, but so far, trying to achieve more extensive pan-European goals – for example around reporting tools and how to achieve SRI objectives – has failed.

It is a goal of Zaouati to help introduce a code of conduct shared by SRI funds wherever in Europe they are based. Cross-border comparability between investment funds in Europe generally has already been achieved via simplified standardised prospectuses, and Key Investor Information Documents, but these do not hone in on SRI criteria.

‘A semantic jungle’

A complementary goal arguably harder, yet still desirable, for the SRI field would be a uniform definition of what exactly constitutes SRI investing. Zaouati calls the arena of SRI “a semantic jungle”.

Having a single definition would not only be useful to make the sector easily identifiable, in Zaouati’s opinion. It would also promote the field in the public mind – also an EU goal – and potentially make it easier for Brussels to introduce targeted incentives for investing in qualifying SRI funds, if authorities wanted to stimulate such investment using such means.

Zaouati notes some push-back has come from managers who include SRI criteria as part, but not all, of their process, as they may feel an SRI label “is too restrictive”.

He is not unsympathetic to such an argument, when applied to the ‘filter model’ of SRI investing.

He is “fairly sure” SRI strategies using a filter – ruling out a priori some companies from investment, then picking the best of what remains – “destroys value” for investors.

“Using filters you are restricting the parameters, then using the same investment process on the restricted universe, so there is a high probability it will destroy value,” Zaouati adds. ”There has been too much ‘green-washing’, too much marketing of SRI. If we want success and to create value and combine value creation with sustainable analysis we need to avoid this two-step process, and to integrate the ESG as an idea generation to create value, and not only as a filter.”

Despite some misgivings about some of the minutiae of SRI investing, Zaouati is a strong advocate of the overall SRI approach, and he argues it should be added to traditional financial analysis.

He says the traditional, non-SRI method of analysis has formed the bedrock of asset managers’ assessment of companies in the past, but risks falling short in important aspects and putting managers and clients who rely on it in significant investment danger.

Including sustainable investment criteria in decisions helps his managers more readily to identify new trends and sustainable business models, which prove their worth not least in times of crisis. This perception may not be available to managers too narrowly focused on the figures in financial statements.

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