Capitalisation of green, social and ethical funds in Europe

Indicator definition

Sustainable and Responsible Investment (SRI) is defined by the European Sustainable Investment Forum (Eurosif) as “any type of investment process that combines investors’ financial objectives with their concerns about Environmental, Social and Governance (ESG) issues” and this definition is used in the indicator.  Data on SRI collected by Eurosif are based on self-reporting by asset managers and self-managed asset owners. SRI are categorised into two main segments, ‘core’ and ‘broad’, which refer to the criteria used by investors.

Core SRI are defined by the following strategies of selection used by fund managers: (1) Norms- and values/ethical-based exclusions (three or more criteria); (2) Positive screening, including Best-in-Class; and (3) SRI thematic funds.

Broad SRI are defined by the following investment strategies: (1) Simple screening (one or two exclusion criteria, norms-based or values/ethical based); (2) Engagement; and (3) Integration. Broad SRI practitioners tend to be large institutional investors and this category is often considered to represent the mainstreaming of SRI and the growing interest of responsible investors in this area. The national market is defined by the country where the SRI assets are being managed (i.e. where the SRI asset management team is located).

Figure 1 shows the growth in the total value in billion Euros (in current prices) of core and broad SRI for all countries with available SRI data for each year are presented for each reporting year (2002, 2005, 2007 and 2009).

Figure 2 shows the growth in Core SRI between 2002 and 2009 for the 8 counties surveyed in 2002 and subsequent years. It additional shows the growth in Core SRI for each country grouping that was subsequently added in future years. Thus, the real growth in Core SRI in individual countries can be distinguished from growth in Core SRI resulting from the increase in geographical scope of the survey.

Figure 3 shows Core SRI as a share in the total value of assets managed in the seven countries with available data.

Units

Billions of Euros in current prices (Figure 1 and 2)

Percentage share (Figure 3)

Policy context and targets

Context description

The international policy framework for SCP was recently agreed at Rio+20 with the adoption of the ten year framework for action on sustainable consumption and production. The declaration ‘The future we want’ recognised the need to change unsustainable and promote sustainable patterns of consumption and production. The need for adopting green and ethical considerations in financial markets is not, however, specifically recognised by the declaration.

In the 2001 Green Paper on Promoting a European Framework for Corporate Social Responsibility (COM 2001/366/final), the European Commission recognised that for SRI to grow further, financial markets need to improve their awareness of its potential returns. The paper highlights  that European market indices identifying companies with the strongest social and environmental performance will become increasingly necessary as a basis for launching SRI funds and as a performance benchmark for SRI.

In its 2002 Communication on Corporate Social Responsibility (COM 2002/347/final), the European Commission invited trustees of pension schemes and retail investment funds to disclose to what extent they considered social, environmental and ethical issues in their investment decisions. It also expressed itself as being in favour of CSR-monitoring and benchmarking initiatives with regard to pension and investment funds. The European Commission, therefore, called on the EU Multi-Stakeholder Forum on CSR to establish principles on an EU common approach on disclosure of SRI and retail funds practices. These and other initiatives came to a halt with the new Communication on CSR (COM 2006/136/final) which failed even to mention SRI.

In its 2007 Resolution on Corporate Social Responsibility (2006/2133/INI, 13 March 2007), the European Parliament addresses SRI and possible roles of the financial sector in the following three articles:

• Art. 16 underlines that investors are important stakeholders concerning CSR debate at EU level and that ‘there must remain the opportunity for sustained dialogue to achieve agreed goals’;
•  Art. 27 asks the European Commission to revise Directive 78/660/EEC (Fourth Directive) on the annual accounts of certain types of companies based on Art. 54.3(g) of the “Treaty on annual accounts of certain types of companies” in consideration of adjoining social and environmental reporting to financial reporting; and
• Art 33 calls on the European Commission to consider a ‘statement of interest principles for investment funds’ throughout the EU.

In its Communication ‘A renewed EU strategy 2011-14 for Corporate Social Responsibility’ (COM 2011/681/final), with regard to investments, the European Commission states its intention to consider a requirement on all investment funds and financial institutions to inform all their clients (citizens, enterprises, public authorities etc.) about any ethical or responsible investment criteria they apply or any standards and codes to which they adhere.

Targets

No quantitative policy targets have been identified.

Related policy documents

No related policy documents have been specified

Methodology

Methodology for indicator calculation

Data on core and broad Sustainable and Responsible Investments in Europe (billion €) in 2002, 2005, 2007 and 2009 were sourced directly from Eurosif publications (European SRI Study, editions 2003, 2006, 2008 and 2010; http://www.eurosif.org/research/eurosif-sri-study).

Data on the total asset market in EU countries was obtained from the European Fund and Asset Management Association (Efama) for 2007 and 2009. The overlap between the SRI datasets and the total assets market was only available for 7 countries (AT, BE, DE, FR, IT, NL and UK). These countries represented approximately 80% and 78% of total EU assets in 2007 and 2009 respectively.

For Figure 1, the total value in billion Euros (in current prices) of core and broad SRI for all countries with available SRI data for each year are presented for each reporting year (2002, 2005, 2007 and 2009). This was drawn directly from the Eurosif data.

For Figure 2, the same data is presented for Core SRI only, but showing how the values are split between country groupings available for each of the additional reporting year i.e. the original countries from 2002 dataset, and the countries added in 2005, 2007 and 2009 respectively. This allows the real growth in Core SRI for individual country groupings to be distinguished from growth in total Core SRI resulting from the increase in geographical scope of the survey. This data was again drawn directly from the Eurosif datasets. Core SRI from countries were gathered into the  following reporting groups whose combined Core SRI are  followed from year to year:  2002 reporting group of 8 countries (AT, CH, DE, ES, FR, IT, NL, UK); country added in 2005 (BE); countries added in 2007 (DK, FI, NO, SE); country added in 2009 (PL).

For Figure 3, Core SRI from the Eurosif reports for individual countries was divided by total assets under management as derived from the Efama datasets for 2007 and 2009, for the 7 countries for which both datasets were available (AT, BE, DE, FR, IT, NL and UK). This provides shares of Core SRI in total assets managed in the seven countries. The values are multiplied by 100 to present the shares as a %.

Methodology for gap filling

No gap filling was necessary.

Methodology references

No methodology references available.

Uncertainties

Methodology uncertainty

No uncertainty has been specified.

Data sets uncertainty

The methodology for identifying core and broad sustainable and responsible investments are described in Sustainable and Responsible Investments (SRI) in Europe – European SRI Study, editions 2003, 2006, 2008 and 2010; http://www.eurosif.org/research/eurosif-sri-study

In order to take account of the many different formulations and usages of criteria by asset managers, the definitions of and distinctions between core and broad SRI are rather loosely defined. This leads to uncertainties in the total values allocated to each type and to SRI in total.

Rationale uncertainty

It should be noted that the actual criteria applied to investments may differ (significantly) between investments companies. Without a set of commonly used minimum criteria there is no guarantee that the investments included under ‘core’ and in particular, under ‘broad’ SRI constitute a consistent set of socially and environmentally sound projects.

The indicator shows trends in overall Core and Broad SRI investment increases. Due to data limitations it has only been possible for Core SRI to show the extent to which growth in the market is due to a widening geographic scope of the survey (from 8 countries in 2002 to 14 countries in 2009) and how much is due to real growth in the market in individual countries. The data was not available to carry out the same assessment for Broad SRI. Therefore the extent to which growth in Broad SRI represents real growth rather than growth in the survey’s geographic scope is not known.

Moreover, the shares of SRI in total assets management which is the subject of the policy question can only be answered for Core SRI for seven EU countries. These are, however, reasonably representative of total assets since the seven countries represent approximately 80% of total European assets.