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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. Frijns added.

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 SRI research.

"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 Global Alliance.

Innovest believes that this best-in-sector approach resonates with mainstream investors.

"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 decisions."

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 much longer."

 

 
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