Europe tackles responsible investment standards

The European Fund and Asset Management Association (EFAMA) is calling for more transparency on Responsible Investment (RI) in order to allow investors to be able to better compare products.

While EFAMA’s recommendations are aimed at institutional investors it believes that the same approach could be applied to retail investor funds, including the newly proposed Packaged Retail Investment Products (PRIPS) currently under discussion.

“In EFAMA’s view transparency in reporting on RI to investors should take place both in the pre‐ and post‐investment phases only for those investment products that are promoted as RI products. In the pre‐investment phase, the Key Investor Information Document (KIID) and other issuing documents such as the prospectus for a fund should indicate that the investment policy follows certain RI standards.

A reference to where further information of those standards can be found should be included, as the limited space in the KIID will not allow a lengthy description. In the post‐investment phase the periodic reports should provide transparency on the fund’s and/or manager’s RI policy. The same approach could be applied to all Packaged Retail Investment Products (PRIPs) where relevant,” states the report.

Responsible Investing (RI) is an increasingly important feature of the European investment management industry. According to the European Socially Responsible Investment Forums, Eurosif, RI in Europe is booming ‐ the total RI market in Europe reached €5tr by the end of 2009, up from €2. tr two years earlier, putting it high on the European Commission’s agenda.

While EFAMA accepts RI can encompass a wide variety of approaches ranging from negative screening and exclusion of companies based on certain criteria to a more positive approach where environmental, social and governance (ESG) factors form the basis of investment selection, it believes a workable definition would be that RI considers ESG issues in the investment process and in investment decisions.

EFAMA plans to work alongside current bodies in place in EC countries to develop guidance and standard disclosure available to investors.

See the EFAMA Report on Responsible Investment here.