Stockholm (NordSIP) – The European Fund and Asset Management Association (EFAMA) published its first ESG Market Insights report titled “Sustainable investment in the European asset management industry: defining and sizing ESG strategies”.
The report covers €12.5 trillion of investment fund assets and €11.4 trillion of mandate assets across Belgium, Bulgaria, Denmark, France, Germany, Greece, Italy, Liechtenstein, the Netherlands, Norway, Poland, Portugal, Slovenia, Sweden, Switzerland, and the United Kingdom.
EFAMA partnered with INDEFI, a strategy advisory partnership for European investment managers, to estimate the level and nature of ESG investment by European asset managers at the end of 2019. The study distinguishes between ESG strategies applied at the firm level and those applied at individual fund level and discretionary mandate.
“Echoing our findings on the institutional market, this analysis confirms that Europe has turned a corner in terms of sustainable investment,” Richard Bruyère, Managing Partner at INDEFI said. “The breadth of practices and level of innovation witnessed in our industry demonstrates that asset managers are embracing a new competitive landscape in which sustainability will no longer be an option one can do without.”
Integration and Exclusions
Firm-level ESG selection strategies represented a total of €10.7 trillion or 45% of the total assets under management (AUM) at the end of 2019 in the countries covered in the report. These strategies focus on exclusions of certain types of investment and systematic and on the explicit integration of ESG risks and opportunities in the investment decision-making process.
A third of assets covered in the report applied exclusions. ESG integration is the most popular ESG selection strategy, with a little over 37% of total AUM are selected following this approach. The report also highlighted the important role of investment stewardship and engagement, with €10.2 trillion (43% of total AUM) of assets subject to ongoing ESG engagement or voting policies.
At the product level, the study distinguishes ESG selection strategies that exclusions, ESG integration, sustainability-themed products and impact investing. ESG integration is the most common selection strategy at the product-level in Europe. In total, EUR 3.9 trillion of assets are managed in this way, accounting for around 16% of total fund and mandate assets.
“The research confirms that a wide variety of sustainable investment approaches are followed, demonstrating the need to exercise caution when quantifying the true size of the European ESG market,” Tanguy van de Werve, Director General of EFAMA, added. “EFAMA and its members are committed to supporting the efforts undertaken to clarify which investments can be deemed sustainable, while ensuring enough flexibility to support the industry’s contribution to the financing of the green transition through collaboration and innovation.”
According to EFAMA, there the continued development of the European ESG market will depend on three improvements. The industry as to find a way to narrow the data gap by ensuring reliable and comparable ESG data reporting. Secondly, asset managers need to increase their transparency through appropriate disclosures. Lastly, homogenization around the use of a single EU/wide label and the avoidance of national ecolabels.
“The creation of an EU label dedicated to green retail financial products would adequately address this fragmentation – provided the national labels fall in line with the newly created EU one – and encourage the cross-border distribution of such products. The EU is developing a proposal for such an Ecolabel, aiming to strike the right balance between the strictness of the label criteria, giving it credibility, and ensuring a sufficiently large pool of eligible investment opportunities,” the report concludes.