According to the 7th edition of the Eurosif Socially Responsible Investing (SRI) Study, “international decision-makers have joined the long walk to sustainability inspired by the words of Bank of England chief Mark Carney about the financial stability risks derived from climate change.” As evidence of this, the European Commission has launched some crucial consultations which have particularly marked the authors’ investor community.
The report focuses on two of the latest ones, specifically issued by DG Just and DG Fisma on Long-term investment and on the Non-binding guidelines relative to the Non-Financial Disclosure Directive (2014/95/EU) respectively. Both are linked to the Capital Markets Union Framework aimed at increasing market liquidity and stimulating investments in Europe.
They both also underscore a renewed role for investors and specifically SRI investors, who continue to prove the relevance of transparency and of incorporating Environmental Social and Governance issues, in the evaluation of investment opportunities.
Transparency, long-term and sustainable investments and accountability are only bywords for some key criteria that determine the work of Eurosif and its members SIFs.
Green bonds
The current boom in Green Bonds highlights the consistent growth in Impact Investing which we have witnessed in the past few years or since the inception of this approach. Pioneered by the European Investment Bank (EIB) in 2007, the Green Bond market has now witnessed significant levels of growth which have been instrumental in highlighting the limits of climate finance. Similarly, this growth has underscored the need for a higher degree of clarification and harmonisation, and green bond issuance is creating a framework within which bond markets can become the instrument of a wider collective action to push further the accountability of environmental finance.
This 2016 European SRI Study bears out the sustained growth in SRI across different approaches.
The report notes a number of interesting shifts, in particular exclusions remaining the dominant strategy at over EUR10 trillion, covering 48 per cent of the total of European professionally managed assets.
In 2015, total Green Bond issuance amounted to over USD40bn. Green Bond issuance has already reached USD44bn, with a potential to reach USD100bn, according to CBI (Climate Bond Initiative) estimates.
France registers the most significant growth (+881 per cent over 2013-2015), followed by Spain (with 264 per cent). This marks a significant change as this strategy registered the slowest growth during last review, at 22.6 per cent. Renewable Energy and Energy Efficiency have been the top categories of investment for this strategy, which have benefitted significantly from an increasing awareness of the implications of climate change, as well as the impact that key international events have had in the past two years.
Norms-based screening is the second biggest SRI approach with over EUR5 trillion in AuM and a steady growth rate of 40 per cent, demonstrating a sustained growth per annum of 31 per cent since 2009. Typically this approach’s main area of growth is the Nordics, but this year, France leads the way with EUR2.6 trillion in AuM, confirming a positive trend already reported in the previous Study.
Switzerland shows the biggest growth at 618 per cent over the last two years.
Characteristics of the Polish SRI market
The asset management industry in Poland continues to grow at a fast pace and the Warsaw Stock Exchange (WSE) continues to be a financial centre of both European and international relevance, the report states.
At the end of 2015, 487 companies with a combined market capitalisation of EUR117mn were listed on the WSE Main Market. During 2015, there were 30 initial public offerings (IPOs) compared to 28 in 2014. The total value of IPOs on the WSE Main List in 2015 amounted to EUR2bn. WSE is also a member of the UN Sustainable Stock Exchanges (SSE)141.
The SRI market in Poland remains in the very early stage of developments. One of the reasons for this stagnation is the low demand due to insufficient knowledge about SRI, its effectiveness and performance compared with mainstream investment. Moreover, the link between the financial performance of SRI and traditional investments, although widely analysed and proven by certain scientific studies, is still controversial. While there is still no SRI leader in Poland building its portfolios entirely on a SRI approach, one large thematic fund investing in environmental protection projects is currently associated with public money.
The National Fund for Environmental Protection and Water Management (NFEP&WM) was established in 1989 in cooperation with voivodeships’ funds for environmental protection and water management. Together, these funds form Poland’s system of financing environmental protection projects. The National Fund is regulated by the Act of the Environmental Law and according to the EU ‘polluter pays’ principle. Foreign funds are also absorbed by the National Fund, for example, from the Cohesion Fund, the European Regional Development Fund, the LIFE+ Programme, the Norwegian Financial Mechanism and the European Economic Area Financial Mechanism. Over the period 1989-2014, the National Fund contributed with some EUR8.5bn from its own funds to the co-financing of environmental projects, and supported ecological projects with approx. EUR5.4bn from the European funds at its disposal.
In 2009, the WSE initiated the RESPECT Index Project, promoting high ESG standards among its listed companies and investors. The index portfolio includes companies listed on the WSE Main Market which follow the highest environmental, social and corporate governance standards. The portfolio selection is carried out by WSE and the Association of Listed Companies, and audited by Deloitte. So far, eight editions of the survey have been completed with 16 to 24 companies included in the index portfolio at each time.
Another project aimed at increasing SRI awareness among listed companies and investors is “ESG Analysis of Companies in Poland”, an initiative developed by the Polish Association of Listed Companies and the ESG rating agency Global Engagement Services. The aims of this project is to analyse the ESG performance of all WSE listed companies and engage with them on increasing the quantity and quality of their ESG disclosure, using an internet platform available in English and Polish. The project is already in its fourth edition.
The SRI market in Poland would profit from the presence of a large international player able to engage in the marketing and promotion of SRI. This would certainly increase customer awareness of SRI investment and stimulate the growth of the market.