EUROPE – Socially responsible investment among European institutional investors is increasing, and pension funds will play a large role in developing the market further, says Eurosif.
According to the 2003 report by the European sustainable and responsible investment forum, or Eurosif, European institutional SRI is now as much as 336 billion euros, and looks set to develop further.
Says Matthew Christensen, executive director at Eurosif: “European SRI is showing signs of entering the financial mainstream”, as an increasing number of institutional investors are employing the use of simple exclusions and engagement practices as a means of managing financial risk.
Eurosif believes that pension funds will play a key role in continuing to develop the Sri market. Says the group: “Due to a focus on long-term results, limited potential for conflicts of interest, and the rising importance trade unions attach to their workers ’ capital, pension funds occupy a unique position within the financial services sector.
“These funds are increasingly involved in corporate governance issues. SRI will be a logical next step for pension fund managers as they continue to refine their criteria in
order to best manage the risks of their investments.”
Across Europe, however, Eurosif says there is no single definition of SRI, with each country’s culture, financial market structure and legal framework influencing its approach to SRI, and therefore influencing the level of investment. Eurosif expects these cultural attitudes to SRI to converge over time.
Currently, the UK and the Netherlands, followed by Germany, represent the largest institutional investors of SRI products. Indeed, in the Netherlands, almost all of the pension funds surveyed said they applied at least simple negative screens in their fund selection as a form of risk management or as an ethical statement.
Pension funds will increase their allocation to SRI for several reasons says Eurosif. Trade unions are taking an increasingly active rile in institutional SRI, and their influence in pension funds will develop the area. Another relevant fact is that pension funds have a long-term view in the way they want their money managed. “This fits the argument that SRI concerns along with sound corporate governance would enhance long-term company performance.”
Finally, says the report, as pension systems move away form debt and increase their share of equity holdings, SRI will naturally increase as a percentage of pension fund assets.