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third of eurozone equities subject to engagement

December 2006

The extent to which institutional investors in Europe raise social and environmental matters with companies has massively increased over the last two years, with the result that more than a third by value of equities held by pension funds are now subject to engagement policies.

In London, where the practice is most widespread, some €730billion ($959bn, £495bn) of assets are now subject to such policies, representing 46 per cent of equity assets held by UK pension funds, which even after the growth in equity markets is taken into account, is a net growth rate of 98 per cent over two years, according to latest figures from the European Social Investment Forum. The gross growth rate is 157 per cent.

Asset managers are also increasingly integrating social and environmental risk factors in their financial analyses, with €641bn of equity investments in Europe now being assessed in this way, regardless of whether they are subject to SRI mandates.

Eurosif says its authoritative biennial study 'is able to demonstrate the growing presence of engagement and integration in all European countries', while noting that both are most prevalent in the UK. However Eurosif does not distinguish between investors engaging on single issues such as carbon risk and those making wider enquiries of companies.

Other trends identified are:
'norms-based' screening of companies to assess compliance with international standards established by the OECD, the United Nations and the International Labour Organization is 'catching on', with €61bn of equities now vetted in this way.
SRI in its various forms has grown 36 per cent in Europe in real terms over the last two years
European SRI fund managers tend to focus their efforts on European companies. More than half of the companies they screen out or engage with are headquartered in Europe.
in the UK, ten per cent of fund managers' SRI activity relates to companies in emerging markets.
the SRI market in Europe is worth €1trillion and is diversifying into other asset classes, among them bonds, real estate and exchange traded funds.

Not all those in the field are so bullish. Peter Michaelis, head of SRI at Morley Fund Management, told delegates at the Triple Bottom Line Investing conference in Paris last month: 'From where I sit, SRI is falling behind other asset classes and becoming more of a niche, not less of one.' But Pierre Bollon, director general of the AFG, the French Asset Management Association, drew an analogy with hedge funds, which in some respects were now mainstream, but in others would always be niche. SRI is 'like Formula One', he added. 'It uses innovative techniques, and some of them are going to end up in your car.'

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