Brussels-based Dexia Asset Management (Dexia AM) has seen significant growth in its SRI business, in spite of markets that have not been particularly receptive.
Dexia Asset Management (Dexia AM) took its first steps in the SRI field in 1996 when it was the asset management arm of Artesia. “We tried to be early movers in what we thought was a theme that would last in our industry,” says Hugo Lasat, chairman of the executive committee at Dexia AM. “We were convinced about the potential of SRI.”
Eight years on, Dexia AM has E3.2bn of SRI assets under management out of a total portfolio of E67bn; this compares with E800m in 2000. Over the past 12 months the company has seen a doubling of its SRI business.
“Until 2000 growth was driven by the fact that Artesia (which has been taken over by Dexia), with its retail focus, wanted to distribute sustainable funds through its branches,” says Lasat. “Since then the institutional segment has been catching up.”
Convincing clients of the financial benefits of SRI has not been easy. Lasat adds: “Institutional clients believed that being sustainable would cost something in terms of relative performance.”
He agrees that this is partly due to clients not taking a long term view of their investments. “But those worries have abated thanks to the very good performance of SRI and the very good range of studies that have been published on SRI. That is reassuring for us.”
Lasat explains that the approach adopted in respect of SRI by Dexia AM takes into account environmental and social concerns, corporate governance issues as well as business ethics, together with traditional financial principles.
“We think that SRI is best captured using a best-in-class approach,” he says. “We try to exploit fully the pure capabilities of specialised screening agencies; their networks and their standards. Through them we offer optional screens such as western humanist values, health concerns and so on. Some agencies have a very flexible system where you can incorporate a different emphasis depending on the client’s requirements.”
The agencies provide the universe, and Dexia AM then incorporates the financial aspects such as risk management and perhaps additional sustainable SRI items in order to achieve the final portfolio for the client.
“We use screening agencies because we definitely don’t want to lag behind new developments in SRI,” he says. “Our clients have benefited a lot from this; the figures speak for themselves.”
He adds: “It’s just one way of working which we have used for the last eight years,” says Lasat. “I don’t think there are a lot of competitors with the same approach.” Dexia AM uses independent specialised sustainable screening agencies such as Ethibel, Vigeo, SiRi Company and Multiplus.
The company’s key market is continental Europe, with asset management carried out in Belgium, Luxembourg and France and client servicing teams in Austria, Italy, Spain, Switzerland, The Netherlands. “Our flagship fund Dexia Sustainable with equity, bond and diversified sub-funds is registered for sale in eight European countries offering full alternative to traditional investments,” says Lasat.
Dexia AM has learned from the experience of the much more mature markets of the UK and the Netherlands. Lasat: “The main lesson is understanding, in terms of asset management, the difficulties one can encounter in switching from a pure classical way of investment management towards incorporating SRI management approaches in the total portfolio at the pension fund level.
He adds: “And you have to define the objectives and communicate the advantages. The problem starts often with the board of Directors of the pension funds showing interest in adding a sustainable approach to the management of their assets.”
Lasat is doubtful about the role played by some consultants. “Some consultants in continental Europe don’t have any expertise in terms of SRI. A consultant following SRI may have 24 months expertise; I consider that as not having a sufficiently long or proven track record.
Regulation has helped, but there is still some way to go. Lasat approves of the regulation concerning transparency, but the issue of standards for SRI remains unresolved.
“I think if we want to further develop SRI and achieve a higher rate of growth than today the European Commission should try to define SRI on a pan-European level,” he says. “It would be good for the asset management industry and for all the screeners and providers of services. It would also be good for consultants and clients, because it would make SRI clearer, transparent and understandable for people who are not expert in the field.”
There will be no let-up in Dexia AM’s drive to grow its SRI business. “Our main challenge is to grow even more rapidly, organically or externally,” says Lasat. “By the same period next year SRI assets under management should have reached E5bn.”
Dexia AM launched its seventeenth SRI fund last month. While the business grows, the main challenge will be to help its potential clients, and their consultants, up the learning curve.