Novethic : le media expert du développement durable
Launched by Novethic in 2009, the Novethic SRI Label is the first European label for SRI funds managed strictly on the basis of Environmental AND Social AND Governance (ESG) criteria.
|WHAT IS IT?|
The purpose of the Novethic SRI Label is to provide individual investors with a framework for Sustainable and Responsible Investment (SRI) products offered by investment managers. As the Label is awarded by an independent body, Novethic’s SRI Research Centre, investors can be sure that the process offers the greatest possible transparency about SRI products in which they might invest.
2009 : Launch of the SRI Label
2012 : New selectivity requirement
Novethic SRI Label Overview
|WHY AN SRI LABEL?|
Providing investors with a benchmark
The market has a substantial supply of SRI funds – more than 1,200 in Europe according to a KPMG 2010 survey – but individual investors with major retail banks still have inadequate access to them. Initially designed by investment managers for asset owners, SRI management processes are often technical, complex and unclear for individual investors. The Novethic SRI Label is intended to be used by individual investors as a quality standard. It guarantees systematic integration of ESG criteria into fund management.
By requiring exhaustive information on the extra-financial characteristics of SRI funds, and especially the disclosure of their holdings, Novethic has reached a milestone in advancing transparency on the SRI market. The labelled funds disclose the full list of securities in which they are invested. In traditional asset management, investors are not giving this information.
|WHY HAS THE LABEL BECOME MORE SELECTIVE SINCE 2012?|
Promoting selective SRI
The recognition received by the SRI Label has prompted firms towards even greater transparency. But SRI funds cannot be convincing unless they differ from other financial products. If issuers’ ESG analysis has only a limited impact on fund management, SRI and non-SRI portfolios will exhibit peculiar similarities. In theory, the value added by SRI consists in identifying companies with the best sustainable practices.
To measure the impact of ESG analysis, Novethic examined the selectivity of each candidate fund, i.e. the number of excluded companies as ratio of the number of ESG-analysed companies. Although this indicator alone cannot guarantee that controversial companies will be excluded from the portfolio, it does ensure that a best-in-class approach consists in choosing companies with the best ESG practices.
The Novethic SRI Label is awarded to open-end funds (pooled funds) managed systematically in light of ESG criteria. The fund manager must detail the fund’s SRI management approach, report on its extra-financial characteristics and disclose a complete list of portfolio holdings.
The label does not cover funds’ financial characteristics; neither is it a guarantee of financial performance or an incentive to invest.
1 - ESG screening
For a fund to be awarded the SRI Label, Environmental AND Social AND Governance issues must all be screened, even if the management approach does not emphasise all three areas. ESG screening must be applied to at least 90% of the portfolio in terms both of assets (excluding cash and community investing) and of holdings, spanning all asset classes. The SRI management approach is intended to encourage the best extra-financial practices among issuers. Therefore, ESG analysis must have a significant impact on investment decision.
2 - Transparency
Investors must be able to understand the fund's ESG characteristics and their impact on the management approach. To meet this criterion, fund managers have to comply with the Eurosif or AFG-FIR Transparency Code. The code must be readily accessible on the fund's dedicated pages.
3 - Extra-financial reporting
The SRI fund's monthly or quarterly report must contain an additional section not included in non-SRI fund reporting. This part of the report contains information on the fund's ESG characteristics.
4 - Disclosure of all portfolio holdings
The full list of portfolio holdings must be disclosed on a half-yearly basis at least and be clear enough.