Profile of Responsible Investors in Europe

Profile of Responsible Investors in EuropeNovethic surveyed 181 asset owners with assets totalling € 7.4 trillion. Nearly 90% of them use at least one of the three main approaches to responsible investment: exclusion (sectorbased and/or norm-based), ESG selection, or shareholder engagement. About 40% combine all three.

KEY POINTS

Responsible investment continues to gain ground with European asset owners
Novethic surveyed 181 asset owners with assets totalling € 7.4 trillion. Nearly 90% of them use at least one of the three main approaches to responsible investment: exclusion (sectorbased and/or norm-based), ESG selection, or shareholder engagement. About 40% combine all three. Formal responsible investment policies are becoming more common, with 78% of these investors saying they have one. Progress is also observed in reporting, as the percentage of investors publishing a report on their responsible investment practices increased by 7 points in 2015. 



European investors are still at different levels of maturity
By comparing policy formalisation, integration of ESG criteria across asset classes, and RI reporting, three levels of development can be distinguished in the European community of responsible investors. Norway, Finland, the Netherlands, Denmark and Sweden are the countries where responsible investment is most developed. France, the UK, Germany, Austria and Belgium are at an intermediate level. Spain and Switzerland bring up the rear, with still only moderate development of responsible investment.

Climate change is a priority issue for a majority of the investors surveyed, with shareholder engagement their preferred mode of action.
More than one-half of European asset owners (53%) say climate change is a top priority for them, though this figure conceals large disparities. Owing to the COP21, mobilisation on this issue involved more than 70% of investors in France and Sweden, but it remained very weak in Spain and Switzerland. Only a minority of investors integrate climate change into their investment policy, and only about fifteen say they exclude fossil fuels, with coal the primary target.

RESPONSIBLE INVESTMENT PRACTICES

About 90% of the asset owners surveyed practice at least one of the three main approaches to responsible investment: exclusion (sector- and/or norm-based), ESG selection or shareholder engagement. Combining strategies is also very common: about 40% of respondents mix all three and 22% combine exclusion with ESG criteria integration.

ESG integration
Integration of ESG criteria is a broad method of analysing issuers. Use of its ‘positive version’, the selection of best-in-class issuers, has increased the most over the past year (up 9 points). The negative version – limiting holdings in issuers with poor scores – is also being employed more (up 7 points). 


ESG assessment of issuers
Responsible investment practices are not being developed with the support of specialised internal staff. Only 26% of the investors surveyed have internal teams of analysts on ESG. This represents a substantial decrease compared with 2014 (35%) and 2013 (49%). Instead, they are relying heavily on specialised rating agencies. This is the case for about 60% of respondents. This seems logical in Spain and Switzerland, where responsible investment is less developed, but it is surprising in Sweden and the Netherlands, where practices seem to be changing and a clear-cut decline in the use of internal teams is observed. This trend is partly explained by increasing technical needs, like carbon footprint assessments.

Exclusion
Exclusion is still the practice applied by the largest proportion of the asset owners surveyed: 78% use it, either in its sector-based or norm-based form, for assets totalling €6.1 trillion.Given that 74% of them also integrate ESG criteria, the dominant practice seems to consist in selecting the best-performing companies, while excluding the ones that seem the worst, either because of their activities or because of controversies they are entangled in. 

Sector-based exclusion 
62% of the investors surveyed exclude certain sectors. About one-half of them exclude controversial weapons companies (47%), and nearly a quarter refuse to invest in tobacco (23%). Gambling, the nuclear industry and pornography are targeted for exclusion by between 15% and 20% of respondents. 

Although the percentages remain relatively stable on the whole, it is interesting to note a big jump in this practice in Denmark. Nearly 90% of the Danish investors surveyed now use sector-based exclusion, compared with just 50% in 2014. 

The emergence of fossil fuel exclusion is the most noteworthy finding of this survey. Although only 8% of investors are using this approach, they are major players whose exclusions from this sector amount to €1.7 trillion, or 23% of the assets held by the sample group as a whole. The two countries where fossil fuel exclusion is most common are Norway (50%) and Sweden (18%).

To download the full report, please click here.