Although the country is more or less in line with other European countries when it comes to SRI assets under management and around 20 SRI funds, in relative terms these assets present less than 1% of total assets under management, according to Davide dal Maso, head of Avanzi SRI’s research department and secretary general of the Italian Forum for Sustainable Finance.

The Italian pension fund industry is now in the early stages of development and voluntarily schemes have been made available to the public. Until recently, the Italian pension system was based on the first pillar.

The latest pension reform was supposed to be enforced by January 2008 but is now anticipated to be introduced earlier than expected in 2007. Between January and June 2007 workers have for the first time the possibility to move part of their pension schemes to private asset managers or into statutory or industry pension funds.

But the TFR reform has also moved the spotlight onto SRI.

Dal Maso says: “The most important feature of the last reform as far as SRI is concerned is that we now have disclosure regulations in place similar to those in the UK. This means that all pension funds have to say whether and to what extent social, ethical and environmental considerations are taken into account in their investment as well as in their voting policy. It is the first time that the policymaker has included SRI in the regulatory framework. Until now only a very few Italian pension funds have had SRI policies in place.”

The Italian Social Investment Forum presented the new guidelines for SRI disclosure in Rome at the end of last month.

Avanzi SRI’s main purpose is to address pension funds and foundations and make them more aware of the social implications of their investments as well as advise asset managers. But the ratings agency has also recently begun some projects with local authorities that have started using SRI in their selection criteria
for sponsors.

Another small but developing market for Avanzi SRI is the screening of sponsors for NGO’s or charities that want to scan donating corporations to make sure they are not involved in controversial activities.

Dal Maso says: “In a governance system where trade unions and employer organisations sit on the board it depends on demand and supply. We are trying to convince the trade unions - which are quite sensitive to the cause but unaware of all the technical details - of the importance of SRI while providing services to the supply industry. I don’t foresee any major resistance from the asset management side, as they will simply respond to demand. Pension funds are interested in SRI but they lack knowledge at this early stage.”

He adds: “And of course they worry about their rate of returns as they are still convinced that SRI delivers smaller revenues. I think it is important to win over their initial reluctance. But it also depends on the reaction of the late February forum. If union representatives and the public are unaware of SRI, the disclosure regulations could be interpreted in one of two ways.

“They could either reinforce the willingness to invest in a socially responsible way or raise concerns about the impact of SRI on financial returns. But I don’t see any reason why pension funds should not include SRI once they realise it does not affect their bottom line. And in the long run employees or pensioners will be happy to know that their money is invested in SRI funds.”

Dal Maso sees the Italian pension industry, driven by the new legislation, as the big market of the next few years. The second most important market are foundations, the institutional investors that legally became the owners of the former state-owned savings banks in 1992.

However dal Maso believes that when it comes to the retail side, SRI in Italy, as in France and the UK, will remain a niche market. He expects the market to grow to a certain level and then stop.

But he adds: “I think mainstream SRI, which is the integration of SRI aspects into traditional financial analysis, will have a future in the long run. This means that asset managers develop SRI as a private market but recognise it as a value driver.

“So even if they don’t manage SRI-labelled products they will still start including some SRI or CSR indicators in their financial analysis, which is another important area for us.”

Avanzi SRI - currently in the process of integrating its department and research offices following the merger with Vigeo in December 2006 - has been monitoring all European SRI mutual funds since 2003 via its main research facility, the SRI Funds Service database. The monitored funds are based on both negative and positive screening.