Assets under management in European responsible investment funds have seen a Compound Annual Growth Rate (CAGR) of 25% between 2012 and 2014, growing from EUR238 billion to EUR372 billion.
That’s according to The European Responsible Investing Fund Survey 2015 commissioned by the Association of the Luxembourg Fund Industry (ALFI) and produced by KPMG.
According to the survey, these assets can be split into a number of categories: EUR 322.8 billion are in cross-sectoral funds; EUR 31.8 billion are in environmental funds; EUR 10.7 billion are in social funds; and EUR 6.7 billion are in ethical funds.
“Responsible investing is growing in popularity,” explains Anouk Agnes, deputy director general of ALFI. “With the rising demand from clients seeking to invest in companies, organisations and funds which aim not only to achieve a financial return, but to also generate measurable social and environmental benefits, the asset management industry is broadening its range of options. Investors can choose between targeted products – like microfinance funds – and more traditional funds applying environmental, social and governance (“ESG”) screening techniques.”
According to the survey, institutional investors are driving the current responsible investing market. The majority of today’s responsible investors are insurance companies or pension funds and are accountable to thousands of members for their long term savings. Many of these organisations have chosen to become signatory to the UN Principles of Responsible Investment and consequently are expecting their asset managers to follow suit.
The accelerating interest of institutional investors is clearly driving the move of responsible investing from niche to mainstream. The investor of the future will increasingly be looking for factors such as: Tailored investment products; Open and simple investment platforms or portals; Flexible and adaptable products which support him and his clients through their lives.
Looking ahead, factors such as product simplicity, transparency and flexibility will be as important to investors as financial performance. Social media may also influence many investment decisions.
The responsible investing sector is already well placed to capitalise on past experience and seize these new opportunities. However, there are a number of challenges that still face the market: The retail market remains untapped; RI reporting and transparency provide a good example for the rest of the market, but still need harmonisation; There is still no common definition of what responsible investing is.
Jane Wilkinson, partner and head of sustainability, KPMG Luxembourg, says: “We are pleased to see the results of this survey reflecting a growth and dynamism of this sector and that product innovation and a set of promising opportunities, for example the development of green and social bonds, have been identified. It is clear that asset managers today can no longer choose to ignore this market segment – they must be prepared to answer questions from their stakeholders around this topic. Failure to anticipate and act upon these questions is likely to result in chances missed and business lost.”
“Whilst responsible investing tends to be niche and institutional, it is ahead of the rest of the market in many ways,” concludes Anouk Agnes. “Responsible investing already focuses on simplicity, transparency, honesty and integrity. It should appeal to the investors of the future, who are already more environmentally and socially conscious. By 2030 responsible investing will move from being a niche product targeting mainly institutional investors to a mainstream investment product, and it’s up to fund managers to seize this opportunity and build their brands on firm “responsible” foundations.”