Sustainable Finance is the 2017 trend in Finance …but green bonds, ESG, SRI…are still concepts very much subject to questions and doubts regarding their definition and standards.
However, despite this lack of definitions, Sustainable Finance seems to attract more and more investors. In a survey realized by Natixis Global Asset Management, the asset manager reveals that up to three quarters of pension plan participants in the US wanted more socially responsible options included in their retirement plans.
In France, Generali Investments highlights the increasing interest from individual investors for those funds (increasing to 20%, up from 5% in the last few years) which can partially be explained by the fact that investors relate more easily to their investments and have more interest for such an investment which they do not have in the case of traditional funds. The performance of those funds has triggered a virtuous circle which leads to the creation of new products. On the ETFs market, ESG products represent 4.2 billion euros (0.7% of the market).
The survey also showed a “distinct split” between professional and individual investors. Whereas individuals believe in the added value of the environmental, social and ethical records of the companies they are investing in, professional and institutional investors are more skeptical about the efficiency of those funds and point to the lack of performance measurements. Natixis believes that this difference is based more on semantics than impacts on investment performance. The institutional investor who responded to the survey raised the view that to ensure the successful implementation of ESG measures, they need reporting on financial and non-financial performance: “we need tools that are accurate and with which professionals are comfortable to use to measure various metrics, including performance”.
This question of performance was raised once again at the meeting this week of the International Capital Market Association which gathered in Paris to update the Green Bond Principles (GBP). The new GBP include additional guidance on impact reporting, with suggested metrics for sustainable water and wastewater projects. NN Investment Partners, a Dutch asset manager declared that issuers should be encouraged to include quantitative key performance indicators (KPIs) in their annual reports.
The new guidelines recommend “the use of qualitative performance indicators and, where feasible, quantitative performance measures (energy capacity, electricity generation, greenhouse gas emissions reduced/ avoided, number of people provided with the access to clean power, decrease in water use, reduction in the number of cars required…) and disclosure of the key underlying methodology and /or assumptions used in the quantitative determination”.
Speaking at the Hearing of the High-Level Expert Group on Sustainable Finance, Guillaume Prache, Managing director of BETTER FINANCE stressed the need to have common definitions and standards (SRI, ISG, what is green and what is not…) and clear scientific evidence linked to those products.
He also reminded that “SRI” or “green” labelled investment products must be exemplary in terms of governance and compliance with consumer protection rules, in particular in terms of investors information (MiFID II).
Read the AGEFI study here ( in French)
Read the Investment and Pensions Europe article here
Read the Investment and Pensions Europe article here