European impact investment hits the mainstream

Eurizon believes environmental, social and governance criteria should be integral to the entire product range.

Giulia Rhodes

15/09/2017

In the decade since the Rockefeller Foundation coined the term ‘impact investment’, the idea has gone mainstream.

Sustainable responsible investing, as it is also known, has seen a 135 per cent increase in assets under management since 2012 – more than one-in-five of every managed US dollar – according to the US SIF Foundation, a forum for sustainable and responsible investment. Valued at $77bn as part of a survey by the Global Impact Investing Network last year, the market is predicted to continue its rapid growth.

The idea that measurable social or environmental returns accompany financial ones is here to stay.

“I am convinced that this is the right direction not only for the planet but for the financial world, too,” says Tommaso Corcos, chief executive officer of Eurizon, the asset-management arm of Intesa Sanpaolo. “It is important to be moving in this direction even in more difficult times.”

“Awareness of themes such as climate change, corporate social responsibility and the effects of these on people’s economic and physical lives is growing. Many retail investors, particularly the younger generation, have a real interest”

Tommaso Corcos, chief executive officer of Eurizon Capital, the asset-management arm of Intesa Sanpaolo



The company – one of Italy’s largest asset managers, with around €300bn of assets under management at the end of June 2017 – was the first in the country to offer ethical funds in 1996.

A signatory to the UN’s Principles of Responsible Investment, it ranks among the top 25 responsible-investment asset managers in Europe – and is the highest in Italy – according to UK charity ShareAction (March 2017).

The notion that impact investment affords lesser returns than its traditional counterpart is clearly outdated

“It has been an evolution, as we continue along a path we were on already,” says Mr Corcos. “Eurizon believes that environmental, social and governance (ESG) criteria should be integral to the entire product range, and we have resolved to update our Investment Process to take in ESG factors, as well as sustainable and responsible investment principles (SRI), in step with the route the company has taken in sustainable and responsible investment.

“The asset-management industry, with us at the fore, must play a decisive role in supporting the development of a valid and sustainable system.”

It is a responsibility that cannot be shirked and which necessitates a wider interpretation of the role of the asset manager. “The job of a company that manages funds is not only about hitting targets and positive performance. It must also positively influence strategy and contribute to creating value in the long term.”

Mr Corcos says impact investment makes financial as well as ethical sense: “Sustainable investment is positive for the companies involved and for the growth rate of individual countries.”

The notion that impact investment affords lesser returns than its traditional counterpart is clearly outdated. Studies by Morgan Stanley in 2015 and Harvard in 2016 found equal or better results on sustainable investments and by companies with higher sustainability ratings.

This research can only boost what Mr Corcos sees as growing grassroots demand for ESG-friendly opportunities from Eurizon’s clients – initially its institutional investors, but now also increasing numbers of retail clients, who want their money to do good while it grows.

“These are important issues for Italian investors. Awareness of themes such as climate change, corporate social responsibility and the effects of these on people’s economic and physical lives is growing. Many retail investors, particularly the younger generation, have a real interest,” says Mr Corcos.

In international investment – a rapidly-expanding horizon for Eurizon clients – adherence to these values is particularly crucial. “On the international front, our clients are mostly institutional investors, so transparency and correctness are key. Stewardship in particular is important as we try to improve corporate governance in the companies in which we invest and to bring benefits in the countries involved,” he says. “Markets which are clear about adopting best practice attract more capital than those where this transparency is lacking.”

There has been a shift in focus around sustainable investment from relatively passive – in which controversial industries such as tobacco, arms, alcohol and pornography were excluded – to more active, seeking out companies and projects generating measurable ESG returns and engaging on these issues with the companies within a portfolio.

“We have a department that deals with the corporate governance of the companies in which we invest. This transparency is something institutional investors like very much,” says Mr Corcos. “We must promote this kind of constructive communication in the interest of our customers.”

“I am convinced that this is the right direction not only for the planet but for the financial world, too. It is important to be moving in this direction even in more difficult times” – Tommaso Corcos

Stocks causing concern are escalated by limiting the possibilities for investment and also through constructive engagement with the company – attending and voting at shareholder meetings, for example. A review 18 months later will lead to termination of the investment if necessary.

In the first half of 2017, Eurizon undertook 360 engagements – 10 per cent of which exclusively concern ESG topics. It is a sizeable task, says Mr Corcos, and the numbers and quality of the firm’s dedicated teams will continue to grow.

An expanded range of specialist ESG products is also available. It started in 1996 with three ethical funds to suit Eurizon’s diverse customer base: an international equity fund, a fixed-income fund and a fixed-income fund with an international equity rating of up to 20 per cent. Eurizon always pursues financial innovation and for this reason since 2016 has designed new products with factorial ESG characteristics.

Stocks are selected according to detailed ESG analysis – with points awarded or deducted for positive and negative criteria – and are subject to continued monitoring by an independent sustainability committee.

“The client can be part of building value for him or herself, but also in the setting in which the investment is made,” says Mr Corcos. “It means everyone round the table can come out a winner.”

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