Financial industry overview
Compared to the economic slow-down that characterised Poland’s economy up until 2013, the last two years have been significantly more dynamic. 2015 has witnessed a GDP growth rate of 3.6%, up from 3.3% in 2014, according to Central Statistical Office of Poland (GUS) estimates. This growth is nearly twice as large as the EU average, estimated at 1.9%. The asset management industry in Poland continues to grow at a fast pace and the Warsaw Stock Exchange (WSE) continues to be a financial centre of both European and international relevance. At the end of 2015, 487 companies with a combined market capitalisation of €117 million were listed on the WSE Main Market. During 2015, there were 30 initial public offerings (IPOs) compared to 28 in 2014. The total value of IPOs on the WSE Main List in 2015 amounted to €2 billion. WSE is also a member of the UN Sustainable Stock Exchanges (SSE).
Characteristics of the SRI Market
The SRI market in Poland remains in the very early stage of developments. One of the reasons for this stagnation is the low demand due to insufficient knowledge about SRI, its effectiveness and performance compared with mainstream investment. Moreover, the link between the financial performance of SRI and traditional investments, although widely analysed and proven by certain scientific studies, is still controversial. While there is still no SRI leader in Poland building its portfolios entirely on a SRI approach, one large thematic fund investing in environmental protection projects is currently associated with public money. The National Fund for Environmental Protection and Water Management (NFEP&WM) was established in 1989 in cooperation with Voivodeship funds for environmental protection and water management. Together, these funds form Poland’s system of financing environmental protection projects. The National Fund is regulated by the Act of the Environmental Law and according to the EU ‘polluter pays’ principle. Foreign funds are also absorbed by the National Fund, for example, from the Cohesion Fund, the European Regional Development Fund, the LIFE+ Programme, the Norwegian Financial Mechanism and the European Economic Area Financial Mechanism. Over the period 1989-2014, the National Fund contributed with some €8463 million from its own funds to the co-financing of environmental projects, and supported ecological projects with approx. €5411 million from the European funds at its disposal.
In 2009, the WSE initiated the RESPECT Index Project, promoting high ESG standards among its listed companies and investors. The index portfolio includes companies listed on the WSE Main Market which follow the highest environmental, social and corporate governance standards. The portfolio selection is carried out by WSE and the Association of Listed Companies, and audited by Deloitte. So far, eight editions of the survey have been completed with 16 to 24 companies included in the index portfolio at each time.
Another project aimed at increasing SRI awareness among listed companies and investors is “ESG Analysis of Companies in Poland”, an initiative developed by the Polish Association of Listed Companies and the ESG rating agency Global Engagement Services. The aims of this project is to analyse the ESG performance of all WSE listed companies and engage with them on increasing the quantity and quality of their ESG disclosure, using an internet platform available in English and Polish. The project is already in its fourth edition.
SRI Market and strategy overview
Although there is a wide-spread perception that the demand for SRI products is almost non-existent, investors are increasingly taking ESG risks into account and trying to include them in their investment analysis and decision-making processes. In addition, the reporting of ESG data following the transposition of the EU Non-financial and Diversity Disclosure Directive is expected to lead to a greater use of ESG information by investors.
The SRI market in Poland would profit from the presence of a large international player able to engage in the marketing and promotion of SRI. This would certainly increase customer awareness of SRI investment and stimulate the growth of the market.
This year, we are able to have a much clearer picture of the extent to which the different strategies are actually implemented and almost all the strategies witnessed at least a double-digit growth. The most striking data is certainly that concerning Best-in-Class which grew to €2 billion, registering a CAGR of almost 3000%. Also impressive is the growth of Sustainability themed funds, the most popular strategy amongst the actors in the market, which went from non-existent in the last review to a total AuM of €4 billion. Norms-based screening grows steadily with a CAGR of 89%, mainly due to one of the leading asset managers in Poland currently managing close to 70 investment funds. Due to the non-participation of a large institutional player mainly focused on Engagement and Voting, we are not able to report data on this specific approach this year.
The capital market in Poland is regulated by the following regulations: Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and on Public Companies, Act on Trading in Financial Instruments, Act on Capital Market Supervision. Each of these acts addresses one of the main three aspects of capital market operations: the primary market, secondary trading and market supervision. There is currently no specific SRI regulation in Poland for funds, asset managers or asset owners. However, according to Polish legislation, every public company is required to include a detailed statement on corporate governance in its annual report, and the vast majority of companies do fulfil this obligation.
In January 2016, the Warsaw Stock Exchange published updated Exchange Rules, which determine the rules of trading on the regulated market, while also introducing a new code of corporate governance: “Best Practice of GPW Listed Companies 2016”. The goal of this revised corporate governance code is to enhance the quality of corporate governance standards of companies operating in the Polish capital market, and to support efficient management, effective supervision, respect for shareholders’ rights, and transparent communications between companies and the market.
Regarding the disclosure of social and environmental issues, the Polish Ministry of Finance is implementing the Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups. Poland has not communicated on the transposition of measures to the European Commission so far. Nevertheless, Poland is experiencing an increase in ESG corporate reporting with around 290 non-financial reports currently on the market and over 40 reports being published yearly.