Financial industry overview
The asset management sector provides the economy with an important source of funding. In Belgium, the assets that are being managed represent 68% of the Belgian GDP, while UCIs made up 14,5% of the households’ financial assets at the end of 2015. The total AuM were at €279.12 billion, leading up to an 11% growth during the course of the same year.
Both the institutional and the retail/private banking segments have shown solid rates of growth, supported by favourable asset price evolutions (roughly 40% of asset growth over the past two years) and by net asset inflows (60%).
Bonds have historically constituted the most important asset class (approximately 70% of AuM), followed by equity (22%) and cash (4%). The rest is ‘other assets’, including private equity, structured products and hedge funds. It seems that the extremely low interest rate environment will continue to support asset management markets for a number of years to come.
Characteristics of the SRI market
Belgium has over twenty years of history in Sustainable and Responsible Investment and the Belgian market has been very active as a result of both NGO activism and the proactive approach of several financial institutions.
Nevertheless, the SRI industry has not grown at the same pace as the fund industry. This could still be due to a general lack of harmonised SRI-product definitions and much needed regulatory initiatives. This adds further to the legacy of the collapse of capital-protected products, which also include savings accounts and which are not taken into account in the Study. Belgium is one of the countries where the retail market is rapidly evolving compared to the institutional one and this is due to a series of factors. On one hand we have historical reasons linked to the country being a hub for savings’ products and therefore targeting mainly retail clients. On the other, we have some of the major players directing their SRI offer to private clients, therefore the surge in demand in the retail sector can also be chalked up to the interest of high net worth individuals (HNWI).
Positive signs for the industry may be coming from a continued interest in the potential of SRI, coupled with raised awareness amongst new actors. On the one hand, institutional investors have been progressively more exposed to and acquired increasing experience in SRI strategies, offering a broader set of ever more sophisticated SRI solutions. Nearly all financial institutions are gradually elaborating CSR and SRI strategies, including: by hiring increasing numbers of ESG/SRI specialists, by linking credit policies to assets gathered on SRI savings accounts or longer term products, by publicly defining sector policies, by announcing SRI-defined asset management policies and by integrating ESG research into security selection processes. On the other hand, universities have been setting up ethical committees and categorising “ESG-issues” in the portfolios managed by their asset managers, while local authorities are taking their ‘fair-trade community’ or CO2-reduction plans to the next level, by introducing sustainability into their finances. This shows a clear trend of the importance of the institutional market in Belgium taking the lead for growth in SRI. To a large extent, asset owners and SRI investors lean on financial institutions while defining their proprietary SRI policies, underlining a major need for further SRI education.
A number of SRI certification options for financial products are available on the Belgian market, including the Ethibel PIONEER and EXCELLENCE labels. These labels are designed for investment funds which exclusively invest in shares or bonds included in Forum Ethibel’s Investment Register and have a high rating, being linked to companies with an above average corporate social responsibility (CSR) performance. Forum Ethibel also developed SRI indexes. The ESI Excellence Europe index selects the 200 best companies rated according to Forum Ethibel’s methodology. After the latest review in March 2015, this index contained 198 companies. The ESI Excellence Global index selects the best rated companies among the largest companies worldwide, again based on Forum Ethibel’s methodology. After the 2015 review, this index included 85 companies.
SRI market and strategy overview
There is an overall positive growth on almost all SRI strategies this year, with the most striking one being Impact Investing, as foreseen in the previous Study. The growth is mainly significant given the fact that it marks the inception of this strategy in Belgium. We anticipate that this figure will become significantly larger in the years ahead and that this growth will be increasingly due to High Net Worth Individuals (HNWIs).
Exclusions still remains the dominant strategy at €253 billion, and together with Norms-based screening, which registers a CAGR of 58%. Conversely, the significant drop in Sustainability Themed investments can largely be attributed to the change in strategy of one of the main players.
Engagement and Voting continues to be on a rising trend, with a 20% increase of AuM, mainly thanks to the continually growing interest from the insurance sector and the fact that over half of this year’s respondents declared that they had a formal engagement policy, indicating a better understanding of the advantages in the formalisation of practices.
Since the previous Eurosif Study, Belgian public authorities and trade bodies have shown only very timid interest in further promoting Responsible Investment in Belgium.
Historic legal initiatives and frameworks remain in place: the 2003 Supplementary Pensions Law that mandates some form of (non-public) ESG disclosure for Pension Funds, the 2012 obligation for mutual funds to clarify the extent to which ESG-factors form a part of investment policy, the 2013 “Belgian Financial Sector Federation (Febelfin) – Belgian Asset Management Association (BEAMA)” harmonised sustainable financial products definitions and obligation for SRI funds to comply with the European Transparency Code and to define and implement a policy on controversial activities.