SRI performance still very difficult to measure – Novethic report
Novethic, a French research centre focused on Socially Responsible Investment (SRI) and Corporate Social Responsibility (CSR), has concluded after analysing SRI funds across Europe that a consistent standard for performance measurement still needs to be agreed and implemented across the sector.
The centre, a subsidiary of French bank Caisse des Dépôts, analysed a set of performance indicators to measure whether SRI contributes to generating fewer carbon emissions, creating more jobs, or improving transparency on executive pay.
It found that effective environmental, social and governance (ESG) indicators are hard to draw up because of a shortage of data about the companies. “Furthermore, at present the indicators cannot be used to assess the volume of CO2 emissions or the number of jobs created per one million euros invested.”
Out of 65 asset management firms offering SRI products in France, only seven have developed ESG indicators, Novethic found.
Institutional investors applying SRI want simple indicators which stakeholders can access and which can evaluate the environmental and social benefits of the SRI approach. “They also want to use the same criteria to compare their asset managers’ performance,” Novethic noted.
Asset management companies say the main obstacle to this is a shortage of reliable, relevant information from companies, and data which is comparable from one financial year to the next. Another difficulty is the rate at which this information is published – sometimes at best annually, a year behind.
Novethic also pointed out that indicators such as greenhouse gas emissions are not representative of an overarching sustainable development approach. “SRI management uses a multi-criteria approach, which can be negatively impacted by a fund’s under-performance in CO2 emissions, whereas an overall company assessment shows ESG outperformance,” it said.
Market participants tend to have their own methodologies to compare ESG indicators, but even if this allows the investor to compare ESG performance in relation to a fund’s benchmark, it does not calculate its real impact in terms of CO2 emissions or job creation.
The full report is available from Novethic’s website: www.novethic.com