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ESG roundup: US SIF, sustainability trends in alternatives, oekom

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  • ESG roundup: US SIF, sustainability trends in alternatives, oekom

GLOBAL - Investments in sustainable and responsible alternative assets jumped by 16% in 2010, according to a report for the US Sustainable Forum for Sustainable and Responsible Investment Foundation (US SIF) by the Center for Social Philanthropy at the Tellus Institute.

The report - the 'Sustainability Trends in Alternative Investments in the United States' - found that $80.9bn (€57.7bn) was invested in 375 alternative investment funds incorporating environmental, social and governance (ESG) criteria at the outset of 2011, reflecting a 15.9% growth in combined assets since the beginning of 2010, when 346 alternative funds managed a combined total of $69.8m.

Report lead author Joshua Humphreys, director at the Center for Social Philanthropy at Tellus Institute, said: "Sustainable and responsible investing - the incorporation of environmental, social and corporate governance criteria into investment management activities - has become an increasingly important part of the capital markets.

"Within this growing investment field, now sized at more than $3trn in the US alone, alternative investments are attracting unprecedented attention across asset classes, geographies and ESG themes."

Key findings of the report include the following:

Private equity and venture capital funds led the field of ESG alternative investment vehicles numerically, with 233 distinct funds in 2011, or 62% of total funds tracked. In asset-weighted terms, however, private equity and venture funds were the second largest of the three asset categories studied, with $33.9bn in combined assets under management, or 41.9% of the ESG alternative investment market. Property and real estate funds managed 54% of total assets tracked in 2011, with a combined $44.3bn under management in 95 distinct funds. In 2011, 47 hedge funds were identified with a total of $2.6bn under management. Representing just 3.2% of total assets tracked and 12.5% of funds numerically, hedge funds are the smallest group of ESG alternative investment vehicles. Environmental criteria were predominant among ESG alternative investment funds in both numerical and asset-weighted terms, with $68.9bn of total assets incorporating an environmental theme. They were followed by social criteria, considered by $48.8bn of the assets studied, ahead of governance criteria, which affected $37.5bn. This illustrates the considerable overlap in ESG criteria within alternative investment funds. In 2011, 73% of alternative investment funds included multiple ESG criteria in fund management.
 

US SIF deputy director and research director Meg Voorhes said: "The majority of the alternative fund managers we reviewed consider several ESG criteria simultaneously, but environmental factors predominate.

"In particular, we see interest in green building, climate change issues, clean technology, renewable energy and energy efficiency. These managers look to produce market rates of return for their clients while helping to foster businesses, generate jobs or introduce products that will yield social and environmental benefits."

The alternative investment funds tracked in the report span the asset classes of private equity and venture capital funds, property investment funds and hedge funds and utilise a broad range of approaches to ESG criteria and themes.

For a chart showing the most prevalent ESG criteria used in alternative investments, click here.
 
In Germany, meanwhile, rating agency oekom research has assessed the sustainability of 154 utilities in the energy, water and grid operating space.

Among the grid operators, Italian company Terna Rete Elettrica Nazionale, Portuguese holding REN - Redes Energéticas Nacionais and Spanish company Red Eléctrica Corporación fared best, with a rating of B+ on a scale from A+ (best) to D- (worst).

Among the energy and water utilities, Brazilian EDP, French Suez Environnement and Portuguese EDP - Energias de Portugal - achieved the best rating with B.

German utilities RWE and E.ON did not qualify for oekom's prime status of B- and better and were respectively rated 31 and 42 in the ranking.

Overall, only 20 companies received oekom prime status. And only 51 companies, or 33.1% of the 154 companies analysed, qualified for a detailed rating.

The others lacked in engagement or transparency of the sustainable measures they applied.

The rating included areas such as climate change adaptation and mitigation measures, the expansion of renewable energy, access to energy for the global population, fair economic behaviour, environmentally friendly operations of plants and the safety of employees.

The average mark of all analysed companies was D+.

The study can be found (in German) here.

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