Financial industry overview
In the last two years, and especially in 2015, the Italian financial market has benefited from the start of economic recovery and an expansionary monetary policy. Indeed, the value of corporate shares and bonds increased while yields on government bonds decreased.
At the end of 2015, the total assets managed by institutional investors in Italy (insurance companies, pension funds, mutual funds and wealth management) amounted to about €1,400 billion. The market is mainly driven by a few big players, in particular insurance companies. Indeed, Italy represents one of the top four insurance markets by GWP at European level.
Furthermore pension funds increased their market presence over the last two years, although their assets are still limited: according to the data published by COVIP (the Italian Supervisory Commission on Pension Funds and Plans) voluntary pension schemes (Second Pillar) represent a total AuM of around €140 billion as of December 2015. €55,3 billion are represented by Fondi Pensione Preesistenti and €42,5 billion by Fondi Pensione Negoziali.
As of December 2015, the Italian asset management industry was responsible for the management of about €1,900 billion and approximately 10% of Italian household financial portfolios for both retail and institutional investors.
Characteristics of the SRI Market
Institutional investors continue to lead the Italian SRI market, mainly driven by a few large insurance companies. Pension funds are also showing an increasing commitment to SRI, but there is still room for improvement – as highlighted in the first and second edition of the SRI Benchmark on pension plans launched in 2015 by FFS and MEFOP using VBDO’s methodology. Similarly, Foundations display an interesting potential that needs to be further developed in the coming years.
The retail side has also witnessed interesting growth as several Italian asset managers recently decided to launch SRI products, in order to meet the increased awareness level of private investors. Over the last two years, as monitored by FFS, the retail sustainable funds distributed by Italian asset managers have increased by a staggering 26%136. Leading the way, Etica SGR – the Italian asset manager that promotes and manages exclusively socially responsible investments – has reached almost €2 billion in AuM in the last two years.
A series of events aimed at raising investors’ awareness took place in the country. In the last years, the SRI Week – launched by FFS in 2012 – has become the most important event on sustainable finance in Italy, gaining increasing visibility and institutional support. In 2015, the initiative gathered over a thousand participants and was granted the patronage of four Italian Ministries. The Economy and Finance Minister Pier Carlo Padoan participated at the opening conference. The rising importance of sustainability in the financial sector has marked the 2016 edition of Salone del Risparmio – the main event organized by Assogestioni, the Italian investment management association – where SRI and Impact Investing were explored during several events and ad-hoc training sessions.
Also, the Italian Stock Exchange, in partnership with FFS, has this year launched a renewed section of its institutional website focused exclusively on sustainable finance.
SRI Market and strategy overview
For the majority of the strategies, the Italian SRI market has experienced a slow but steady growth over the last two years.
Sustainability themed investments have experienced the largest increase, driven both by some “traditional” players in the Italian SRI market having augmented the assets reported for this strategy and by a few new players, also coming from the private equity sector. The integration of environmental – particularly climate-related – concerns can be identified as the main catalyst for this strong growth, especially in the post COP21 context.
Italian investors seem to have moved towards Sustainability themed to the detriment of other SRI strategies, such as Best-in-Class (+2%) and Engagement, that this year registered a slight decrease. This is largely due to the fact that one of the biggest players on the Italian market has considerably reduced the amount of assets reported under this strategy. Meanwhile, other key actors, such as pension funds, have shown an increasing activism towards engagement and promoted a few interesting initiatives within the last two years.
For instance, at the end of 2014, a group of 14 pension funds, led by Fondo Cometa – the largest of the country – and coordinated by Assofondipensione, launched the first collective engagement action in Italy. The initiative, following the one launched by Boston Common Asset Management through the PRI Collaboration Platform, was aimed at encouraging banks to disclose more information about climate-related risks. Fondo Cometa continued to lead engagement initiatives in 2015, launching a new project focused on children’s rights that was supported by more than 30 institutional investors (mostly pension plans but also asset managers, representing approximately €50 billion AuM).
Even if traditional strategies such as Exclusions and Norms-based screenings still represent the largest amount of assets, an interesting growth can also be recorded on more innovative approaches such as Impact Investing – a strategy, which we are reporting on at member state level this year for the first time. In Italy, it registered a significant growth over the past two years. This can be explained by an increase in social housing investments, driven by the national programme promoted through “Fondo Investimenti per l’Abitare-FIA”, managed by CDP Investimenti Sgr. The fund invests in several local funds, also collecting resources from other investors (mainly Foundations); the general aim is to increase the availability of accommodation that is affordable for people on low incomes, who can neither access the traditional public housing sector (Edilizia Residenziale Pubblica – ERP) nor afford market rents.
The regulatory framework has been rather stable for the past two years, without any major developments.
Nevertheless, this period has been instrumental for FFS in building a constructive dialogue with several Italian ministries – namely Economy and Finance and Environment. The end goal is a fruitful collaboration, where the FFS will be able to play an increasingly advisory role in shaping a more promising legal framework and promoting the actions needed to push sustainable finance in Italy; also in the context of the financial package to stimulate growth “Finanza per la crescita”. FFS’ SRI definition outlined in the previous edition of the Study has served as a reference point in the discussions with Italian institutions.
Moreover, FFS has co-led, together with Fondazione Cariplo, the working group on “Greening institutional investors” in the framework of the Italian National Dialogue on Sustainable Finance promoted by UNEP and the Ministry of Environment.
The adoption of the Directive 2014/95/UE on disclosure of non-financial and diversity information is also set to be introduced in Italian legal framework by the end of 2016.
Looking ahead, the SRI market in Italy will be facing key challenges in the coming years. First of all, the market players – especially institutional investors such as insurance companies and pension plans – will need to properly understand and address the emerging environmental and climate change issues, in line with the post COP21 scenario and the commitment to keep average temperatures well below 2°C.
Italian Asset Owners and Asset Managers will need to systematically take into account ESG aspects across the different asset classes, including real estate, private equity and project financing at a multi-scale level, both national and local. These important challenges cannot be tackled without a systemic perspective and a strong institutional backing: that’s why the Italian government and the financial authorities will be playing a central role in shaping the discussion and promoting a framework capable of unlocking the much needed reforms.
Those financial players that are already integrating ESG aspects will also be instrumental in fostering further developments of the Italian market, by making the business case for sustainable finance and debunking the persistent prejudices against SRI.
Insurance companies and pension funds will continue to be the actors with the biggest potential for growth; while Foundations are expected to show a growing appetite for SRI as an investment strategy fully aligned with their mission and fiduciary duties.
On the retail side, Asset Managers will continue to widen their offer, in response to the increasing awareness shown by investors. This is particularly true for the private banking sector, where there is already a growing demand for SRI products aimed at High Net Worth Individuals (HNWI).