The European Commission has called on the financial sector to do its bit for investments in Europe that will help achieve the Paris climate targets. The demand from European asset owners for sustainable funds has grown significantly over the past year. No fewer than 245 new sustainable funds were set up in 2018. So the figures seem promising and encouraging.
The article 'Beleggers moeten met de billen bloot over klimaatrisico's’ (Investors must be frank and open about climate risks) published in the Financieele Dagblad (28 March 2019) shows that not all MEPs are satisfied. They want investors to be transparent about climate risks in their portfolios and the sustainability of their funds. And that the greenwashing of funds should come to an end. In other words, there is still a lot of chaff among the wheat.
Lack of an unambiguous definition of sustainability
At present, providers of funds can decide for themselves whether to call a product responsible or sustainable. There is no unambiguous and industry-wide definition of sustainability. The industry uses different terms, such as 'responsible', ESG, SRI, 'green' and 'impact'. Financial industry sources note that asset managers are increasingly changing the names of existing funds to include the word 'sustainable' or similar wording. Without actually making fundamental changes to the fund's investment strategy.
No uniform assessment of funds
The lack of a definition encourages greenwashing and makes it difficult to compare and select. In addition, when assessing the sustainability of funds, investors should be aware of the importance of the data quality of the source used to indicate whether or not a fund rightly deserves to be labelled 'sustainable'. The three key data providers for fund information all offer a unique and unfortunately non-uniform classification method to map the sustainable funds market. That does not make it any easier.
Solution: broad EU-wide index
To be able to make a better selection of sustainable funds, our asset manager ACTIAM advocates using a uniform and more advanced classification method. The method should help identify sustainable funds of large data providers, in particular, in a more objective and well-founded way.
The European Commission's recently announced plan to create ESG and green indices will help. A uniform approach will make it possible for asset owners to better compare 'apples with apples'. One idea is to introduce a label indicating whether a fund has actually been set up as a sustainable fund or themed around ‘sustainability’. This is currently done on a small scale by commercial rating agencies, each applying its own methodology. On the basis of an ACTIAM analysis, it was found that only half of funds classified as sustainable would in fact be eligible for such a label.
So how about the Zwitserleven funds?
The investment funds used by Zwitserleven in its products are managed by the asset manager ACTIAM. All companies in which ACTIAM invests on behalf of Zwitserleven's customers are reviewed against ESG criteria. The socio-ethical principles on the basis of which we assess investments are called the Fundamental Investment Principles. Partly on the basis of these principles, ACTIAM manages the risks for Zwitserleven's investments and, for its part, Zwitserleven can influence the behaviour of companies through ACTIAM. Together we contribute to achieving the Sustainable Development Goals (SDGs) of the United Nations (UN).
ACTIAM has also incorporated into its investment policy the impact on the 9 planetary boundaries. These have been identified by the Stockholm Resilience Centre. The planetary boundaries impose a ceiling on the quantity of natural resources that humanity can use without depleting the earth. ACTIAM applies a scientific methodology to measure companies against the SDGs. And companies are also tested for compliance with the United Nations Principles for Responsible Investments.
Zwitserleven is fully transparent about the investment policy of its funds. All information is available and we are in constant dialogue with ACTIAM. The aim is to further strengthen the sustainability of our funds on the basis of new insights. Where possible, all our funds meet the strict ESG criteria. Where this is not yet entirely possible, we are actively looking for alternatives in order to achieve our ambitions. At the end of the day, we invest the pension money of participants in order to provide them with a worry-free financial future in a liveable world that matters.
This article is published on 15 January 2020