January 29, 2003
Europe's Largest Pension Fund Buys a Minority Stake in SRI Research Firm
by William Baue
ABP and State Street Global Alliance have invested in Innovest, another indication that mainstream
investors are seeing the benefit of implementing SRI strategies.
ABP Investments, Europe's largest
pension fund--with roughly €140 billion in assets--announced on Monday that it had purchased
a minority equity stake in Innovest
Strategic Value Advisors. Based in New York, Toronto, London, and Paris, Innovest specializes
in best-in-sector socially responsible investing (SRI) research. The State Street Global Alliance,
a partnership forged in 2001 between State Street
Global Advisors (SSgA) and ABP, also purchased a smaller minority equity stake in Innovest.
According to Innovest founder and CEO Matthew Kiernan, ABP's overall equity stake is expected to
grow to between 15 and 20 percent over the medium term.
"For us, this represents a
strategic investment in knowledge capital in an area which we believe to be one of the most
critical factors driving the future of fiduciary investment," said ABP Investments CEO Jean Frijns.
"There is a growing body of evidence that companies which manage environmental, social, and
governance risks most effectively tend to deliver better risk-adjusted financial performance than
their industry peers."
"Moreover, all three of these sets of issues are likely to have an
even greater impact on companies' competitiveness and financial performance in the future," Mr.
Dr. Kiernan explained the historical development of the working relationship
between Innovest and ABP.
"It's a bit of a Victor Kiam story," Dr. Kiernan told
SocialFunds.com, referring to the Remington Razor president's television commercials ("I liked the
razor so much, I bought the company"). "We started out as humble research providers to ABP."
Innovest first helped ABP build two $100 million sustainability portfolios, one covering the
pan-European markets and one covering U.S. markets. Both portfolios outperformed their benchmarks
by more than 100 basis points, Dr. Kiernan said. Next, ABP and Innovest wedded the two portfolios
into a single global portfolio, the Loyalis
Global Sustainability Fund, named after the ABP subsidiary that manages it. Whereas the two
individual portfolios were internal, ABP is offering the global portfolio to third parties.
"ABP is now sufficiently emboldened to go a step further and take a strategic minority stake in
us," said Dr. Kiernan.
ABP and State Street appreciate Innovest's distinctive approach to
"What we like about Innovest is its intrinsic research capabilities,
approaching the broad marketplace with the intention of identifying the best companies within
sectors and not necessarily looking to screen out companies," said Jay Cromarty of the State Street
Innovest believes that this best-in-sector approach resonates with
"It's important for us to produce analysis and research that is not
only valuable within the SRI community but can be taken seriously and acted upon by the mainstream
as well," said Dr. Kiernan. "SRI is going to become one of the drivers of mainstream investment
This phenomenon is already taking place in Europe. For example, British law
requires pension funds to disclose the social, environmental, and ethical considerations of their
investments. ABP's investment in Innovest further substantiates this trend, and State Street's
participation demonstrates a similar trend in the U.S. institutional market.
"I do think
that the next eighteen months will see a sea change in the U.S. institutional investor world," said
Dr. Kiernan. "Up until now, U.S. institutional investors on the whole have been less cognizant of
SRI issues than their European confreres. But as industrial competition for consumer markets and
competition for capital both globalize, U.S. institutional investors will replicate more and more
this European approach of incorporating SRI considerations into mainstream investment decisions. I
don't think that U.S. capital markets can remain insulated from global capital markets for very