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November 10, 2014
Eurosif Updates Study of Sustainable Investment in Europe
    by Robert Kropp

The sixth study published by the European Sustainable Investment Forum since 2003 details a continuing increase in assets devoted to aligning investments with social and environmental goals, and includes a lengthy analysis of the phenomenon of impact investing.



Every other year since 2003, the European Sustainable Investment Forum (Eurosif) has published a study of sustainable investment trends in Europe. And every one of Eurosif's studies has confirmed a consistent trend: that assets devoted to sustainable investments are growing, and are in fact outpacing growth in the mainstream market.

In its most recent study, published last month, Eurosif—whose members collectively manage over $1.25 trillion in assets—reports “that all SRI (sustainable and responsible investment) strategies covered by the Study have continued to grow at double-digit rates since 2011.” Furthermore, noting a “peak in concentration of interest” in the practice, Eurosif speculates that 2014 may, in fact, represent “a tipping point for the industry.” Heightened interest on the part of policymakers, who “have started to look at ways to unlock the potential of SRI to contribute to more sustainable capital markets and business practices,” is contributing to the trend, Eurosif continues.

Negative screening—the oldest of sustainable investment strategies, in which industry sectors or individual companies are excluded from portfolios due to negative social or environmental impacts—remains the most commonly practiced strategy, with almost $9 trillion in assets allocated to the practice in 2013. The amount represents a 38% increase since Eurosif's last study, in 2011.

(A new report on the state of sustainable investment in the US, from US SIF: The Forum for Sustainable and Responsible Investment, is due out later this month. In its previous study, published in 2012, US SIF reported that negative screening was the most commonly applied strategy of sustainable investors, particularly in relation to investment in Sudan.)

The most common exclusion strategy applied in Europe, according to Eurosif, observes “international conventions on Cluster Munitions and Anti-Personnel Landmines;” assets devoted to the strategy totaled around $8.5 trillion in 2013. In three countries, Eurosif reports, “there is legislation in place prohibiting investors from holding companies involved in these activities. Other countries are in the process of exploring or drafting similar legislation.” The strategy of norms-based screening is prevalent in Scandinavia, while the UK and the Netherlands are leaders in shareowner engagement.

“The revision of the European Shareholder Rights Directive has the potential to foster Engagement and voting practices,” the report states.

So-called positive screening strategies by sustainable investors—such as best-in-class and environmental, social, and corporate governance (ESG) consideration—are also increasingly popular. And while assets devoted to sustainability-themed investments—described by Eurosif “as one of the purest, in the sense that these assets are targeting certain themes around sustainability, as opposed to applying extra-financial (ESG) criteria or norms to a standard portfolio of assets regardless of the industry or activity”—remains small compared to other strategies, it too has seen an increase since 2011, of 11% to $73 billion.

Eurosif devotes an entire section of its report to the phenomenon of impact investing, a form of community investment practiced by foundations and high net worth individuals as an alternative to philanthropy. Efforts by practitioners to distance themselves from traditional sustainable investors has led to criticism in some quarters; the description of impact investing as, in itself, a new asset class, has raised eyebrows in some parts of the industry.

“Impact investing has been presented as the next phase of SRI (SRI 2.0) by some market commentators,” Eurosif states. “Impact investing has also been presented as a new asset class by others. These representations are misleading.”

“Impact investing remains a peripheral strategy within SRI that has not yet realized its full potential,” Eurosif concludes.

 

 
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