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Socially Responsible Investing

03/30/2018 - 02:30 PM

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Socially Responsible Investing (SRI) is a strategy of financial investments which takes into account both the investors' desire for profit and the social impacts of investments on the surrounding Community

In recent decades financial markets have been enriched with various forms of Socially Responsible Investing (SRI), recognised as flexible investments tools to the point that the financial sector can now count on a growing number of SRI funds.

According to a study by JPM's ESGQ published on 6 March 2018, “ESG - Environmental, Social & Governance Investing,” the size of the SRI global market is estimated at 22.8 trillion dollars. 53% is managed in Europe, 38% in the United States and less than 10% in the rest of the world.

Of the 7 SRI(*) investment strategies identified by Eurosif and commonly used by asset managers to select businesses according to environmental, social and governance criteria, the criterion Exclusions represents 36% of the total, Integration 25%, Engagement 20%, and Norms-based screening only 15%, totalling up to 96% of the assets managed.

The request for ETF (Exchange-Traded Fund) products on ESG themes has significantly increased in recent years. The assets managed through socially responsible ETFs total around 11 billion dollars, distributed among approximately 120 funds worldwide.

 

Looking at the trends of recent years, the 2016 edition of the European SRI Study by Eurosif  records double-digit growth for all sustainability strategies in the two-year period analysed (December 2013 to December 2015), with an increase from +30% for the Engagement strategy to +385% for Impact Investing, with a particular concentration on innovative tools such as Green Bonds. There was also increased interest in responsible investments by retail investors in Europe (+549% on 2013). 

 

This trend is also confirmed by the Vigeo report "Green, Social and Ethical Funds in Europe - 2016". Despite the drop in the number of funds, the total assets managed has continued to rise (+16%), reaching 158 billion euros in 2016. (See diagram below)

 

 

(*) 1. Sustainability Themed; 2. Best-in-Class; 3. Norms-based screening; 4. Exclusions; 5. ESG Integration; 6. Engagement and Voting; 7. Impact Investing.

The diagram shows that after the significant growth in the number of SRI retail funds in 2015 (+26% to 1,204), 2016 was a year of consolidation.

At the end of June 2016, the green, social and ethical funds domiciled in Europe numbered 1,138 (5% less than in June 2015). France, the United Kingdom, Switzerland and the Netherlands confirmed their leadership, representing 68% of the European market.

In total, SRI funds represent 2% of the global market of European investment funds, a higher percentage than in 2015 (1.7%).