September 25, 2006
Mainstreaming of SRI Boosts Assets in Europe Over One Trillion Euros
by Bill Baue
The latest report by Eurosif on socially responsible investing in Europe notes the distinction
between core SRI, which is steady, and broad SRI, which is fueling the growth.
"SRI is growing," according to the European Social Investment Forum (Eurosif) in a new report. Eurosif counts €1.033 trillion in assets under management as of year-end 2005
using the broadest definition of socially responsible investing (SRI)--of which €105 billion in
assets are managed according to more traditional, "core" definitions of SRI.
"Across Europe, we see signs of robust SRI strategies, increased mandates from
institutional players and the growing involvement of more traditional financial services providers
such as brokers," said Matt Christensen, executive director of Eurosif. "In fact, the one constant
in the three years since the Study was last conducted is that European SRI continues to be an area
of diversity and ever increasing scope."
"What the growing mainstreaming of SRI also means
is that the line between SRI and non-SRI becomes more challenging to define," he added.
The broad definition includes three elements. Simple exclusions such as tobacco (€4 billion)
or weapons (€138 billion) totaled €266 billion. Shareowner engagement accounted for €730 billion.
And integration of environmental, social, and governance (ESG) considerations into mainstream
investment decision-making accounted for €641 billion. Engagement and integration overlapped
significantly, with €594 billion of assets managed using both techniques.
Integration remain the strategies of choice in the context of mainstreaming SRI," the report
states. "But the picture is uneven in Europe, as the UK remains the powerhouse for Engagement, and
"Ultimately, the size of the European market in Engagement and
Integration is really defined by the weight of UK assets," the report continues. "However, some
practitioners of Core SRI dispute the capacity of these strategies to propose an in-depth approach
to sustainable development and ethical issues."
Core strategies encompass ethical
exclusions, amounting to €73 billion, and positive screens, such as best-in-class and so-called
"pioneer" screens (for example renewable energy), accounting for €64 billion, with overlap between
the two of €32 billion. Of course core strategies also employ engagement, as well as some
integration as well.
The report acknowledges the inherent "roughness" of trying to map the
complex landscape of SRI--particularly in drawing a boundary dividing core and broad strategies.
Put simply, core SRI tends to "act as the vanguard," defining the moral underpinnings of social
investing. Broad SRI adopts some of the views advanced by core SRI, primarily those that are
consistent with the business case, while leaving other aspects--typically the more subjective moral
components--by the wayside.
Other drivers of uptake include regulation, particularly
legislation on environmental issues such as greenhouse gas emissions reductions laws, as well as
the evolving understanding of the fiduciary duty to address ESG issues. The report also notes that
SRI is not only being driven by the buy-side of the investment equation, but also the sell-side.
"The striking news from the market is the exponential interest in sell-side analysis
provided by brokers, which is used by more than 70 percent of [fund managers] in the UK and
Belgium, and 50 percent of [fund managers] in the Netherlands," the report states.
last Eurosif study of SRI in 2003 found
the overall market at €336 billion. However, changes in methodology make it harder to draw direct
trajectories. For example, the 2003 study covered only institutional assets, arguing that retail
assets were amply researched in other sources. However, this inclusion only accounts for a minor
part of the increase in assets, as institutional money accounted for 94 percent of all SRI assets
in 2006, with retail accounting for a mere six percent. The latest study also added Belgium to the
list of European countries covered, which also included Austria, France, Germany, Italy, the
Netherlands, Spain, Switzerland, and the United Kingdom.
Interestingly, the current
study does not include Scandinavian countries, home to the , one of
Europe's largest SRI funds at approximately €175 billion, and Sweden's AP funds. These funds are particularly activist
as well--just this month, the Sweden AP2 fund followed in the footsteps of the Norwegian Pension
Fund Global in divesting
from Wal-Mart (ticker: WMT) after the company failed to
respond to concerns over human rights issues. It seems odd that Eurosif could not manage to gather
SRI data from the Scandinavian countries, given that three years elapsed between reports and
researchers spent six whole months gathering data from other European countries. The report is
silent on why this data was so elusive.