Sustainable Investing by

Retail & Institutional Investors

FRDO Seminarie over de financiering van de transitie

‘Meer geld voor minder koolstof’

1/2/2018

2

1. Demand for sustainable investments by

retail and institutional investors

2. Offer of sustainable investment opportunities

by banks and asset managers

3. Market of sustainable investments

4. Challenges

HLEG on Sustainable Finance – Final Report

Recommendations (Jan 2018) 4. Key elements of a retail strategy on sustainable finance: investment advice, ecolabel and sri minimum standards “Citizens with savings to invest should be empowered to invest in portfolios that reflect their sustainability and ethical preferences. The direct result would be to bring a substantial part of the EU’s financial assets into pools of capital contributing to sustainable finance.” The HLEG recommends that the Commission and the European Securities and Markets Authority (ESMA): a) Require investment advisers to ask about, and then respond

to, retail investors’ preferences about the sustainable impact of their investments, as a routine component of financial advice.

b) Facilitate retail investor choice by increasing transparency on the sustainability impact and processes of retail funds.

c) Protect retail investors by establishing minimum standards for sustainably denominated funds.

d) Establish a voluntary European green label to spur market growth and enable retail investors to identify products that finance the climate and ecological transition.

5. Develop and implement official European sustainability standards and labels, starting with green bonds

3

1. Demand for sustainable investments by

retail and institutional investors

4

Why invest sustainable?

• Avoid risk (climate, transitional, legal, reputational) Protect financial profit

• Create social, environmental impact Generate societal profit

5

Schroders, Global Investor Study 2017

“More than one-quarter of assets under management globally are now

being invested according to the premise that environmental, social,

and governance (ESG) factors can materially affect a company’s

performance and market value.”

Why invest sustainable?

But 'ethical' concerns are not less important. Finance is not just about maximizing

risk-adjusted returns but also about doing good (without compromising risk-

adjusted returns).

6

McKinsey&Company, From ‘why’ to ‘why not’:

Sustainable investing as the new normal, Oct

2017

“While early ethics-based approaches such as

negative screening remain relevant today, other

strategies have since developed. These newer

strategies typically put less emphasis on ethical

concerns and are designed instead to achieve a

conventional investment aim: maximizing risk-

adjusted returns.”

Retail investors

Growing importance of non-financial factors & interest in sustainable investing

But not at the cost of financial performance!

7

Institutional investors

• Long term risk management

• Pressure from benificiaries, stakeholders, society

• E.g. Pension funds, universities, unions, (local) authorities

• Divestment movement

8

2. Offer of sustainable investment

opportunities by banks and asset managers

9

More information on sustainable investing

10

Ethisch beleggen is voor iedereen, Dirk Coeckelbergh,

Siem de Ruijter, Staf Lavergne, Herwig Peeters, Oct.

2016

“Kies zelf wat er met je geld gebeurt”

Website “Sustainable Saving & Investing” www.sustainablesavingandinvesting.be

www.duurzaamsparenenbeleggen.be

www.epargneetplacementsdurables.be

List of financial products with a particular focus on

people, the environment and sustainable business

Sale of SRI products to retail investors

• Offer-driven vs demand-driven

• Impact of regulation: MiFID & PRIIPS

• Information to clients

• SRI as default offer

• Robo-advice

11

2° Investing Initiative Report, Non-financial message in a

bottle - How the environmental objectives of retail

investors get overlooked in the process of MiFID II and

PRIIPS implementation, Oct. 2017

“Questionnaires used by mainstream retailers for client profiling,

shows that non-financial investment objectives are hardly ever

discussed. Even when discussed, the information is not recorded

together with other information on the client’s needs and

preferences.

Clients’ non-financial investment objectives are like a message in a

bottle: in most cases they will get lost and not reach their intended

destination: taken into account for product selection and design.”

Services & products for institutional investors

• Integration of ESG factors in portfolio

management

• SRI Investment funds

• Green bonds, social bonds, climate bonds,

SDG bonds

• GIIN Initiative for Institutional Impact

Investment

• European long-term investment fund

(ELTIF)

12

3. Market of sustainable investments

13

Growth of sustainable investment market - Global

GSIA, 2016 Global Sustainable

Investment Review

Eurosif, European SRI Study 2016

14

BEAMA/Febelfin (Q3 2017)

• 118 products, €8,77bn, 4,62%

15

MIRA, Milieurapport

Vlaanderen, Research report

(Q4 2016)

• 267 products, €16,32bn,

9,21%

Many sources, different definitions & scopes incomparable figures

Size of the Belgian SRI market

4. Challenges: financial performance, impact

and definitions

16

Financial performance of ESG

Gunnar Friede, Timo Busch & Alexander Bassen: ESG and

financial performance: aggregated evidence from more than

2000 empirical studies, Journal of Sustainable Finance &

Investment, Dec 2015

“The business case for ESG investing is empirically very well

founded. Roughly 90% of studies find a nonnegative ESG–CFP

relation. More importantly, the large majority of studies reports

positive findings. The positive ESG impact on CFP appears

stable over time.”

17

EFAMA: Report on Responsible Investment, Sept 2016

“There is no statistically relevant outperformance or

underperformance of Responsible Investment strategies”

“RI is at a minimum an opportunity to improve the risk

management within the chosen investment strategy.”

Financial performance

Morningstar Direct, Sept 2017

18

Impact oekom Impact Study 2017, The Impact of Socially

Responsible Investments on Companies – an Empirical

Analysis

“Over 36 percent of companies, an increase of four

percentage points from four years ago, confirm that the

requirements of sustainability analyses have an influence on

their general business strategy.”

19

Impact of negative & positive asset selection

• ‘Do no harm’

• Exclusions

• ‘Do good’

• Thematic & “SDG funds”

• Impact investment funds

Impact measurement & reporting?

Definitions

Very steep growth dof demand Risk greenwashing

Essential to have quality requirements

Common definitions and standards (‘Sustainable’, ‘SRI’, ‘Green’,…) needed

Taxonomy and labelling

• Process-based (policies & transparency/reporting)

• Asset-based (excluding/impact)

Different ways to implement sustainable investing – Strategies

• The 7 sustainability strategies: 1. Negative/exclusionary screening

2. Positive/best-in-class screening

3. Norms-based screening

4. Integration of ESG factors

(ESG: Environmental, Social, Governance)

5. Sustainability themed investing

6. Impact/community investing

7. Corporate engagement and shareholder action

20

2 projects to promote and enhance sustainable

investing

Advocating SRI

• Belsif, Belgian Sustainable Investment Forum

• 2018: Project to relaunch Belsif

SRI definition & label

• 2001: BEAMA Methodology

• 2012: Febelfin-BEAMA Revision

• 2017-2018: Project to create a quality standard

• Key elements

- Minimal exclusions

- Positive strategy

- Transparency & information to investors

- Independent supervision

• Stakeholder consultation

21

Belgian SRI Label

Febelfin vzw/asbl

Belgian Financial Sector Federation

www.febelfin.be

Tom Van den Berghe

CSR Manager

tom.van.den.berghe@febelfin.be

@banking4society