A survey released this month by the Association of the Luxembourg Fund Industry (ALFI) showed that European investment is making progress in socially responsible investing practices, but still has vast room for improvement. European investments in sustainable segments are estimated at 129.5 billion Euros, which represent only 1.6% of total investments. The report concluded that while socially responsible investment is increasing, it is still a niche market.
Luxembourg and France are the leading European countries managing sustainable assets, with the two countries combined accounting for about half of measured assets. The most popular categories for responsible investing are in the environmental category: carbon emission reduction and renewable energy make up the largest subcategories listed in the survey. Microfinance is the leading subcategory in the social investment area. However, the majority of funds, about 70%, are represented by “cross-sectoral” funds that only measure positive results rather than focus on a particular theme, making responsible investment practices more muddled in a world calling for more clarity.
The report highlights some key findings as to how sustainable investment can be improved. First, there is wide confusion about what sustainable terminology means as there are no standardized definitions of terms across industries. Many companies also still struggle with clarifying and sharing data, showing a gap in completion and accuracy for potential investors reviewing information. The report also suggested that asset managers provide more clarity on their investment strategies. Many people in the industry are waiting on regulations from the European Union before moving responsible inventing forward due to the lack of clarity on terms. ALFI professionals also encourage more third party verification systems to improve quality of data.