The SRI market continues to enjoy strong and steady growth. However within this, notable shifts are occurring in the strategies that are deployed:
- Screening – while there is little relative growth in ‘core basket’ (bombs, booze, baccy, bingo etc.) ethical screening, single issue screening (e.g. cluster bombs, Darfur) and norms-based screening (e.g. compliance with Global Compact) have gained traction in recent years
- Constructive engagement – is seeing strong growth in institutional markets and also resonates with retail investors. However, questions remain unanswered about the relative merits of ‘issue-focussed’ vs ‘company-focussed’ engagement, outsourcing and collaboration. We discuss these in our discussion paper: ‘Engagement: pause for thought’)
- Best-in-class –this strategy looks likely to retain its strength in continental Europe but (in spite of the author’s long-standing affection for it) cannot be classified as one of SRI fastest growing strategies.
- Integrated analysis – demand growth is strongest for products that support the integration of environmental and social considerations with financial analysis – partly because of the potential for financial outperformance and partly because this strategy underpins the investment logic of all other strategies. The emergence of this strategy is discussed at length in our discussion paper: ‘Integrated analysis: approaching a tipping point’
- Sustainability theme investing – saw strong growth through 2006 and 2007; although there was naturally some softening in some single theme strategies (e.g. renewable energy), this has been smoothed to some extent by a broadening of the thematic categories (to include new themes such as water theme, climate change, healthcare etc.)
Divergence with confidence
As strategies diverge and each develops its own growth drivers and momentum, asset managers are becoming more confident in pinning their colours to a selection of the strategies that have most synergies with their core asset management competence and fewer feel the need to offer one-stop-shops that cater to all SRI strategies.
Globalisation
The attention of asset managers is globalising. While the issues addressed are often, by definition, global, the growth of interest by institutional investors makes it easier to target a global client base and, as a result, their stock coverage has to expand to a global scope.
This is a gradual process and, in many cases, the starting point is modest – as in other areas of investment, some asset managers claim global coverage but, in reality, devote 70% of their attention to their domestic market; 20% to other markets in their region and 10% to the rest of the world.
Research sophistication
A number of factors combine to demand greater depth and sophistication in the sustainability research conducted (or commissioned) by asset managers. The most notable of these are: the greater sustainability sophistication of companies and the greater demand for research that integrates sustainability with financial factors.
