The finance world’s focus on sustainable and responsible funds is not random. According to the World Economic Forum, in just ten years, global risks have gone from being mostly economic in nature to becoming specifically environmental and social. In addition, these risks are becoming more recurrent and significant in terms of the extent of economic and financial damage that they can cause.
The future outlook is clear: institutional investors must increasingly adopt an ESG approach – which therefore takes cognisance of environmental, social and good governance aspects – as an integral part of their investment process. The reasons are backed by legislative obligations: Europe is making great strides ahead in this sense. Another driver is certainly the hunt for long-term economic asset performance: due to the material implications (profitability) and immaterial implications (reputation with stakeholders).
The Mercer Survey: institutional investors and sustainable and responsible funds
The Survey, now in its 17th edition, reviews the asset allocation trends of larger institutional investors in Europe. The interest shown for sustainable and responsible funds has grown significantly, both in terms of quantity and quality.
The sample covered 876 European portfolios, representing 12 countries, for a total of over € 1,000 billion in assets.
Italy’s representation is interesting: accounting for around 8% of the sample, thanks to the inclusion in the survey of Social-security funds (weighting of 23%), Pension funds (weighting of 67% of the sample) and Bank foundations (weighting of 10%).
The results speak clearly. Environmental, social and governance risks were taken into account by 55% of European institutional investors in their investment choices. The 2019 figure also records a significant increase (formerly at 40% in 2018).
85% of Italian respondents stated that they took ESG aspects into consideration in their investment activity (formerly 56% in 2018). This figure, showing a marked increase from the previous edition, is also higher than the European average of 55% (formerly 40% in 2018).
But what has pushed institutional investors to give more weighting to sustainable and responsible funds?
Regulatory pressure was mentioned by 56% of the respondents in Europe and 45% of the Italian sample. Playing a decisive role are surely the introduction of the European Directive on pensions, referred to as Iorp II (2017) and the Department of labour and pensions regulation (Dwp) in the UK.
The same can also be said for the issue of management and control of engagement and voting activities (stewardship). The survey found that 38% of Italian institutional investors (27% in Europe) took proxy voting and engagement into consideration when selecting their managers.
There is still a lot of work to be done on the issue of climate change. Only 15% of the Italian sample (and 14% of the European), said that portfolio decisions were guided by the challenges posed by global warming.
Institutional Italian Investors and ESG
The comparison between Italy and the rest of Europe shows that in Italy, more so than in Europe, the ESG filter is considered an effective tool for containing the reputational risk of one’s investments: 55% in Italy and 29% in Europe. This is a very significant result for the market and shows a high level of maturity on the issue.
Luca De Biasi, Wealth Business Leader of Mercer Italy, states: “The Italian sample is very clear in relation to fears regarding the financial impacts that can arise from not considering ESG factors when drafting a portfolio policy, and overtakes the European data”.
We are the only Italian asset management company that exclusively offers sustainable and responsible funds. Etica Sgr is a pioneer in Italy in ethical finance and we are proud to have anticipated the trend, having believed in this business model from the outset.
Our approach focuses on creating medium and long term revenue opportunities without causing any negative impact. Our conviction – backed by our track record – is that by investing in issuers that are more mindful of ESG issues mitigates the risk and targets companies and countries that are potentially more geared towards the future.
 Mercer is a global leader in consulting and in technology solutions for the development and organisation of Human Capital, actuarial, pension services and managing investments for institutional investors. For more information: www.mercer.it
16 July 2019Responsible finance Institutional investor Sustainable and responsible funds