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December 13, 2010
Survey of European Asset Owners Finds Incentives for ESG Integration Vary
    by Robert Kropp

A report by Novethic finds an increasing alignment among asset owners of ESG practices with fiduciary responsibility, but a lingering focus on short-term performance as well.

In its recently published survey of the integration of environmental, social, and corporate governance (ESG) factors into the investment decision-making of European asset owners, Novethic builds upon the "undisputed conclusion" of the October study by Eurosif of sustainable investment trends in Europe.

The Eurosif study, according to Novethic, "highlighted the increasing number and long term success of responsible investment strategies over the past ten years," and that ESG integration is "playing an increasing part in asset management."

"Just five years ago," Novethic observes, "Before the United Nations
Principles for Responsible Investment (PRI) were published, investors thought that ESG integration could conflict with their fiduciary responsibility."

Yet, Novethic continues, "Questions remain as to the real reasons why institutional investors are taking a growing interest in extra financial issues." Its survey of 251 asset managers from nine European countries, with almost $10 trillion in assets under management, seeks to answer these questions.

While 84% of asset owners surveyed by Novethic "believe that integrating ESG criteria maximizes beneficiaries' long-term interest," only 69% indicate that they integrate such issues into investment decision-making. Furthermore, 54% of respondents state that "building long-term performance relies on seeking the best short and mid-term performance." On the other hand, 28% believe that long-term performance can be enhanced by the management of long-term risks, and 18% are willing "to accept poorer short-term performance in favor of a more sustainable economy."

In fact, nearly half of respondents say that contributing to a sustainable model of economic development is their primary incentive for ESG integration. Significant majorities of asset owners define such integration as the monitoring of sustainable practices by corporations, and the selection of issuers based on ESG criteria. About one-third use screens to exclude high-risk sectors or securities.

The survey finds that incentives and practices relating to ESG integration vary widely from country to country. Majorities of respondents in France and Germany embrace the sustainable development model as their reason for ESG integration. More than 40% of investors in Finland and Denmark apply ESG criteria to protect their reputations, and one-third of French and Dutch investors consider long-term risk management to be their primary motivation.

"Only in the United Kingdom," Novethic finds, "Do a majority of investors believe that ESG integration is first a factor in financial performance."


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