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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.

Engagement and 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 now Integration.

"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.

The 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.


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