European institutional investors are increasingly considering the implementation of sustainable criteria in their investment policy. This notion rests on the concept of sustainable development, according to which the optimisation of long-term profitability may only be envisaged in harmony with the interests of all. The momentum enjoyed by Socially Responsible Investment (SRI) in recent years has encouraged many asset managers to embark on this market too.
As regards the choice of manager, institutional investors wishing to implement SRI should not only take into consideration the traditional screening criteria like performance, risk management and a consistent track record, but also the strategic importance the manager attributes to SRI. This strategic importance can be checked in various complementary ways: the AUM concerned by SRI, the breadth of the gamut over and within various asset classes, involvement in research, active commitment to the development of the industry and the possibility of integrating various SRI screening methods into financial management.
A study carried out by Dexia Asset Management and based upon data provided by AVANZI* stressed that in 2003, around 300 European SRI funds were managed by 128 management companies. The investigation points out that two thirds of suppliers offer only one sustainable fund. The graph below clearly shows that only a very limited number of asset managers offer a full alternative of sustainable SRI funds. A mere 8% of asset managers offer a range of more than five different SRI funds.
As a result, one can justly wonder to what extent the SRI offer is a strategic choice for many asset managers or whether it is an opportunistic approach. We think this is a consideration for institutional investors when looking for a partner for the management of an SRI mandate.
Dexia Asset Management is a major operator in the field of sustainable management in Europe, occupying a prominent position on the market both through the extent of its range of funds and the amount under management. With assets under management of more than E1.5bn at the end of 2003, sustainable management is an axis of strategic development within Dexia Asset Management. According to the last assessment made by AVANZI at the end of June 2003, Dexia Asset Management’s market share in socially responsible UCITs management was 9.6% in continental Europe, placing the group among the market leaders.
From the launch of its first sustainable funds in the Nineties, Dexia Asset Management made the strategic choice to offer a complete range of products, responding to investor requirements. The development of these products is a true alternative to so-called traditional investments. Through its open funds and dedicated management, Dexia Asset Management covers almost all asset management fields.
The eighteen open Dexia Asset Management SRI funds are registered in seven countries. The funds invested in equities cover all the major economic zones (Europe, North America, Pacific). Furthermore, Dexia Asset Management has developed a range of thematic funds placing the emphasis on social and ecological aspects or solely on large stock market capitalisations. Investors also have access to funds invested exclusively in bonds and to diversified funds, invested in equities and bonds. To define the investment universes of these funds Dexia Asset Management uses independent screening agencies, selection by which guarantees the sustainable quality of securities.
Alongside this complete range of funds, based on sustainable investment universes, Dexia Asset Management sustainable management team continues to develop more specific products.
In 2003, Dexia Asset Management launched TrackinDex, one of the first sustainable ETF (Exchange Traded Fund), based on the Dow Jones Sustainability Index STOXX. ETF are unique financial instruments combining the advantages of index-linked funds and those of equities (valuation every 15 seconds). TrackinDex DJ STOXX Sustainability is a product with great potential, taking account of the increasing interest on the European market for this type of product and the strong demand from clients for products fulfilling ethical, social and environmental criteria.
The management of dedicated funds is within a market context where the requirements of institutional investors have increased sharply. Dedicated management allows the emphasis to be placed on sustainable aspects to which investors are more sensitive and opens the way to the creation of tailor-made products. In addition, to fulfil investor expectations, the management team is able to work with independent screening agencies. For example, they already worked with Ethibel*, Vigeo for equities or Multiplus for bonds in the construction of sustainable universes.
In this context, in November 2003, Dexia Asset Management institutional team launched the fund Paricor E10 intended for institutional investors. The reserve fund of the Flemish Ministry of Social Affairs (Vlaams Zorgfonds) was the first institutional investor to invest in this sustainable equity UCITS, based on the reference index ESIG-1. Ethibel* specially created the index composed of equities from around the world included in its investment register.
Also in 2003, the fund Dexia Sustainable World Equities Fund (Australia), a mirror fund based on the subfund Dexia Sustainable Accent Social, was strengthened in its very competitive position in comparison to other international funds available on that market. Launched at the end of 2002, this SRI fund combines the advantages of quantitative management with a high quality equity selection, fulfilling Ethibel criteria.
These funds come within Dexia Asset Management’s global sustainable development range.
In conclusion, the sustainability/ return combination offers a genuine opportunity to investors. In order to benefit fully, they must have access to a complete range of products, covering all the fields of asset management. This can be achieved through not only an offer from the asset manager of a consistent funds range with solid track records but also through their strong involvement in research of a dedicated team and collaboration with independent screening agencies. So the strategic choice of a true commitment in the sustainable development will allow to identify a leading asset manager in socially responsible investment.
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*AVANZI and Ethibel are members of the SiRi group (Sustainable Investment Research International); data available at www.sricompass.org