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Mark of excellence

In January Brussels-based Independent SRI and CSR advisory and research organisation Ethibel launched its new ‘excellence’ certification in an attempt to appeal directly to institutional investors. This, coming hot on the heels of the new disclosure law on SRI for pension funds, will give a boost to Belgium’s SRI market, which lags behind most of its European neighbours.
Established in 1992, Ethibel has until now concentrated on the retail market with its ‘pioneer’ label or certification. The pioneer label contains 260 companies worldwide which are, in the words of Marc Bontemps, managing director of Ethibel, “leaders in sustainability, innovative and outspoken”.
So why the new excellence label? “The pioneer label was considered too restrictive for the institutional investor,” says Bontemps. “We could not guarantee that every sector in the MSCI universe would be represented. The market capitalisation of some sectors in the pioneer label universe is very limited. Institutional investors want a broader spectrum to limit risk.”
The excellence label contains 350 companies including the 260 from the pioneer label. Bontemps notes: “The additional companies are those that are performing better than average in the field of SRI. With this register we can provide adequate coverage of all sectors and therefore offer a useful tool to asset managers and institutional investors.”
The excellence label contains 42% of the companies in the Eurostoxx 50. Bontemps considers the inclusion levels of 80% found in other indices as ‘exaggerated’. “We include more elements in our screening,” he says, and adds, referring to other approaches: “Of course, the broader you are the more attractive you are.
“It is the choice of the pension fund whether it wants to be strict on this issue or more loose,” he continues. “We are stricter.”
Bontemps highlights the importance to the Ethibel approach of involving all stakeholders: the management, the unions, environmental groups – the list will depend on the sector – and company in question. “We guarantee inclusion of all stakeholders in the judgement,” he says.
Ethibel screens companies on their internal social policy including issues such as employment; environmental policy; external social policy, covering a company’s engagement on issues such as human rights in its areas of operation; economic policy – how the company relates to its clients and its shareholders.
Bontemps stresses that there have never been companies in the Ethibel indices that have been involved in scandals such as that seen at Enron. “If we cannot get enough data on their governance policies we do not include them,” he says.
Ethibel is largely focused on the Belgian market although it also has clients in Italy and Austria. Last year a new law came into force in Belgium requiring pension funds to disclose their social and environmental policies. “So the law is challenging pension funds to think about the kind of policy they want to go for,” says Bontemps. “Before, people hardly thought about it.”
He adds: “Unions and trustees have concerns about returns and tracking error but in Belgium, as in other markets, they are willing to think beyond those aspects. For example, unions would not like to be appointed to funds which invest in companies that do not respect labour rights or where there have been environmental scandals. But there is a conflict where job losses are concerned.”
But given that some other sustainable indices for institutional investors have been up and running for some time, isn’t Ethibel coming to market a little late with its new index? “If we look at the UK benchmark we are late,” says Bontemps. “But we are not late to the Belgian market where corporate pension funds are relatively new.”
SRI accounts for approximately 1% of assets under management in Belgium, of which between two-thirds and three-quarters are retail. “If the percentage has doubled in five years we will have done a good job,” says Bontemps.
Because of its long-standing retail focus, Ethibel’s contacts among asset managers are mainly those belonging to local banks.
Ethibel does not receive government funding but there are government funds that use the Ethibel criteria. A non-medical social insurance fund run by the Flemish state, for example, invests exclusively in Ethibel-certified companies.
Belgium’s new industry-wide funds are subject to the new disclosure law. The contributions are small for now, so the short-term opportunity is perhaps limited, but as they are set to be the mainstay of Belgium’s second-pillar pension system, the potential is there. Bontemps has them in his sights.
By being noticeably more exclusive in its SRI criteria than its rivals Ethibel has certainly distinguished itself; whether this will be sufficient for institutional investors which, in other countries have responded well to less exclusive rival indices, is the big question.

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