Responsible Investing (RI) is an exciting area and is steadily gaining momentum with investors showing a growing interest in investment strategies that integrate Environmental, Social and corporate Governance (ESG) criteria into the investment process. RI investment strategies include:
- Cross-sectoral investments applying positive and/or negative screenings and/or faith-based filters;
- Thematic investing such as clean water and renewable energies, carbon finance or community investing such as microfinance which gives access to loans and other financial services to micro-businesses.
The Eurosif (European Sustainable Investment Forum) report in 2010 highlights a fast-growing segment where investors are seeking returns while engaging on sustainability issues. Eurosif estimates that sustainable investments represented approximately EUR 5 trillion, as of December 31, 2009 including pension funds and discretionary mandates.
A KPMG Luxembourg study, commissioned by the Association of the Luxembourg Industry and issued in May 2012, has identified 1,236 European domiciled RI investment funds with assets under management totaling EUR 129.49 billion. The total RI assets in Europe thus represents almost 1.6% of the European investment fund market in terms of assets and 2.3% in terms of number according to EFAMA figures.
Whilst this study confirms that Responsible Investment funds remained a niche product in 2010, we believe that the sector, driven by customers demand and authority initiatives, will encounter significant evolution in the future. For instance, this study confirms that social entrepreneurship funds were marginal in 2010 but with the EU initiative on Social Entrepreneurship Funds, this picture could radically change in the upcoming years.
Luxembourg provides an attractive range of structures for responsible investing funds and in particular the number of RI regulated investment funds set up in Luxembourg is growing. 28% of the RI funds are domiciled in Luxembourg and the Grand Duchy appears as the favoured domicile both in the area of Environment and Social funds. In the area of microfinance 66% of European microfinance funds have been established in Luxembourg.
We believe that sustainability factors will increasingly shape international capital markets and will open up significant opportunities for product innovation and development and broader service opportunities available to financial institutions and other key stakeholders as demand from both institutional, High- Net-Worth Individuals and retail clients increases.
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