Responsible Investing needs to move to mainstream – Alfi survey
Responsible investing (RI) funds are showing strong growth, with assets under management increasing since 2010 by 19% from €199.9bn to €237.9bn, with the proportion of RI assets compared to the total assets in European funds increasing by 1.6%, according to a survey conducted for the Association of the Luxembourg Fund Industry (Alfi).
Carried out by KPMG on behalf of Alfi, the report sets out a number of challenges the industry must overcome if RI is to move from niche to mainstream, and how industry participants can help.
Marc Saluzzi, chairman of Alfi, said RI is becoming increasingly important, which is why the association designated it as a “third pillar” of its activity.
Thomas Seale, chairman of the Alfi Responsible Investing Technical Committee, and chairman of LuxFLAG, says: “This report, together with CSSF figures on microfinance and Sharia funds, indicates solid growth rates in responsible investing. However, it also shows that we are facing a series of challenges in the areas of ESG integration, distribution and transparency. The industry needs to work to overcome these challenges if we are to move responsible investing from niche to mainstream.”
Nathalie Dogniez, head of Investment Management, KPMG Luxembourg, said the RI sector will evolve significantly in the future and the study identified the trends that will shape that future. The survey, which covers the responsible investment fund market as at 31 December 2012, looks at the size of the market, investment categories and the domicile of funds. The RI fund universe in Europe identified in this study comprises 1,775 funds.
The five action points called for by the survey 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.
The survey also notes that while 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 €28.1bn;
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.
Between 2010 and 2012 Microfinance funds continued to grow both in number of funds and AUM (growth of 26%). Some 22 new Sharia-compliant funds were created in Europe, with the total number reaching 75 funds at the end of 2012 and AUM in impact funds increased by 17%, with 44 funds totaling €1.4 billion of AUM as of December 2012.
Download the survey here: The European Responsible Investing Fund Survey