EUROPE - The concept of what constitutes socially responsible investment (SRI) in Europe varies significantly from country to country, according to the second annual survey by SRI research centre Novethic with the support of BNP Paribas Investment Partners.

The survey - entitled 'European Asset Owners' ESG perceptions and integration practices' - found that European investors tend to associate responsible investment with issuer selection based on environmental, social and governance (ESG) criteria, a focus on their sustainable development practices and ethical exclusions.

The importance of ethical exclusions varies considerably depending on country. More than 75% of German, Dutch, Danish and Swedish investors cite this practice, while less than 40% of French or UK respondents follow suit.

The exclusion of companies or sectors due to ESG risks ranks second, cited by 43% of European respondents.

This practice is very common in countries such as Denmark (73%) and Finland (75%), but is significantly less widespread in France, where it has been adopted by 28% of the investors surveyed.

Between 2010 and 2011, two of the motivations to integrate ESG criteria grew in importance: the contribution to sustainable development rose from 46% to 51% in importance, while long-term risk management gained 6% to reach 25%.

The clearest sign of this shift is that more investors acknowledge the contribution of ESG analysis to financial analysis.

More than half (53%) of respondents believe all issuers should be subject to ESG analysis for a better understanding of risks and opportunities.

They also feel the best source of information for implementing responsible investment policies is specialised rating agencies, with 45% buying their reports.

The most widespread practice is the introduction of a charter - 42% of respondents already have one, and 18% are preparing one.

However, only 25% have in-house ESG analysts.

Although European investors seem to be aware of certain issues, they do not always act on them.

Less than a quarter of them state that they have revised their investment policy following events such as the BP platform explosion or regime changes brought about by the Arab Spring.

After the explosion at the Fukushima nuclear power plant, only 16% of survey respondents said they had reviewed their exposure to the nuclear sector.
Ethical investment - the practice of excluding certain sectors for moral or religious reasons - is closely related to respondents' views about reputational risk, such as receiving negative media coverage or being the focus of NGO campaigns due to their investments.

Northern European investors express the greatest concern about this type of risk, but this fear is less prevalent in the south.

The survey noted the sharp development of certain reputational risk issues. Controversial weapons, such as anti-personnel mines or cluster bombs - a relatively small concern about 10 years ago - are now condemned by 80% of respondents.

Tax havens and commodities seem less problematic, but are nevertheless mentioned by 42% and 34% of the sample, respectively.

To avoid any risky securities on their investment portfolio in order to protect their reputation and to prevent the negative impact of controversial companies on their earnings, norm-based exclusions have developed among investors.

Among the 40% of respondents that integrate ESG analysis for all equity investments, 62% practice norm-based exclusions. This refers to eliminating companies in breach of major international conventions.
In total, 259 asset owners - such as private and public pension funds, private insurers and mutual insurance companies, foundations, NGOs, banks, public financial institutions and religious institutions - in Belgium, Denmark, Finland, France, Germany, Italy, Luxembourg, Netherlands, Spain, Sweden and the UK, with €4.5bn in combined assets, were surveyed between June and September.