Tuesday, May 17, 2011

SRI poised for evolution, bank says

Socially responsible investing has undergone a “spectacular” transformation in recent years and is ready to move to the next level, according to a report from German commercial bank WestLB.

The 120-page report states that the SRI market continues to grow strongly in both absolute and relative terms. “Based on Eurosif numbers, we estimate that the overall [European] RI volume will increase to about 6,500 billion euros by the end of this year – which suggests that it no longer represents a niche market.”

Large institutional investors, such as corporate pensions, have taken the lead in setting RI standards, the report notes.

WestLB divides the growth of SRI in three stages, starting with ethical and/or philanthropic considerations, “basically negative screening,” and continuing with the integration of environmental, social and governance (ESG) factors into investment-making decisions. “A lot of advances have undoubtedly been made in this area over the last couple of years,” the report states. “The concepts and methodologies used have become smarter, the investment process more rigorous and efficient.”

The third stage, which West LB says is just beginning, is the move towards a consistent, multi-asset approach to responsible investing. “It is closely intertwined with some of the open questions regarding ESG integration and active ownership.”

“ESG integration remain the name of the game,” the report states. “Going forward, more specificity is needed with regard to questions about ‘how to do it’ and ‘how to measure added value and impact.’”

The full report is available here.

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