E S or G: What do European investors have to say about it?

European Union - Sep 06 2018

Responses of stakeholders to the question: “What are the sustainability factors that the relevant investment entities should consider?”

On the 24th of May 2018, the EU Commission published the results of the public consultation on Institutional Investors’ and Asset Managers’ Duties regarding sustainability. It was established based on the 191 responses given by a variety of stakeholders (institutional investors, industry associations, private individuals, NGOs…)  domiciled in 14 EU Member States, 3 other European countries, and 5 non-European countries.

This graph displays the 143 public responses to the question: “What are the sustainability factors that the relevant investment entities should consider?” The respondents had to give a gradual answer by ranking the importance of each factor. The result is almost unanimous: 75% of respondents marked all factors as either important or very important. This seems to indicate that ESG factors are widely regarded as a good framework to pilot decision-making. The discrepancies between each factor are marginal, however, the higher dispersion of answers makes climate the most debated factor with 10% of respondents giving it a low or very low importance.

Does this mean that all investors have embraced the ESG approach and are committed to implementation? A few observations should moderate these encouraging results. Firstly, the study aggregates answers from high-level financial institutions with the ones of private individuals or NGOs, it does not represent the financial leverage of each respondent. There may be a motivation bias as well since respondents were free to (or not to) answer knowing their answers would be made public. Answers given by members of the finance industry are slightly different: governance and climate come first while social and other environmental factors receive a lower approval. Finance industry participants also indicate further in the study that fiscal transparency and a larger range of best practice factors are also relevant in many cases. This leads the EU Commission to state that investors should be left with the discretion to choose how they apply ESG factors in their decisions, as the relevance and materiality of these factors can be dynamic and depend on each situation in terms of investment strategy or market.

 

Nathan Breen, Climate Analysis Team – Sources: Beyond Ratings, European Commission

 

 

 

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