Today, this approach to investing “that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns”* is much more than a marketing slogan to differentiate from competitors.
Responsible investing is increasingly driven by the spreading recognition that ESG factors play a material role in determining risk and return, as well as shaping the industry. Next to the established specialised investment managers, more and more mainstream asset managers are entering the market, seizing the opportunity of this flourishing sector. Increasing thoroughness and granularity of responsible investing strategies, processes and policies enhance market sophistication and drive total growth.
Ever since ALFI organised its first microfinance conference more than ten years ago, it has considered responsible investing as the “third pillar” of the Luxembourg investment fund industry, aligning its importance with that of the other two investment fund pillars – UCITS and AIFs.
ALFI is thoroughly convinced of both: the key role that asset managers can play in fostering responsible finance and the great opportunities for asset managers and investors that RI represents.
Luxembourg has strengthened, over the years, its position as number one domicile for responsible investing funds in Europe in general and in each of the underlying strategies, accounting now for 31% of funds and 35% of total AuM. ESG cross-sectoral funds applying positive and negative screening strategies remain the largest market share with 1,687 funds and EUR 423.3 billion AuM.
The European responsible investing fund market has almost doubled in size since 2010, reaching EUR 476 billion of AuM managed by 2,413 funds at the end of 2016.
AuM encountered a growth of 26.6% from 2014 to 2016, a substantial development across all ESG-cross sectoral and thematic (such as environmental or social) categories.
The market has seen a clear boost in climate finance. After COP21, renewable energy and climate change funds increased their share to 36% in the environment category, encountering a significant growth in the number of funds (42%) and AuM (47%) since 2014. The Luxembourg domicile occupies the leading position in this category too, accounting for 38% of funds and 45% of AuM.
Luxembourg offers a comprehensive regulatory toolbox to structure responsible investments. The choice of legal form will largely depend on the investment strategy selected and the targeted investor base.
* UN Principles for Responsible Investment (UNPRI)