THE FRENCH SRI MARKET IN 2005: information on assets under management and mutual fund and dedicated management Executive Summary May 2006
O u t l i n e SUMMARY 3 French residential market 3 Mutual fund management (FCPs and Sicavs) 6 Employee savings 6 Dedicated management for institution investors: SRI approaches and integration 7 Leaders in the French SRI market 9 2
S u m m a r y French residential market Overall, the French SRI market viewed from the demand side and not from the side of available supply in France, as the latter includes both French and foreign investors in their assets under management reached 8.8 billion euros at year-end 2005. This is an increase of 27% in one year. More than 70% of this market is taken up by mutual funds. However, dedicated fund management, in particular via employee savings vehicles, continues to make more rapid progress (+31%) than pooled or mutual funds (Sicavs, FCPs and FCPE SRI ranges) managed using SRI approaches (+26%). If both collective and dedicated management are taken into account, the French residential market accounts for only 42% (3.6 billion euros) of all SRI assets under management, although inflows from this segment are rising faster (+30% versus +26% for institutionals), in particular thanks to growth in employee savings. Institutionals have 5.15 billion euros invested in accordance with SRI principles, which is 58% of all SRI assets under management. 3
French residential SRI market: Mutual and dedicated management (in billions of euros) 2003 2004 2005 2004/2005 Retail 1.60 2.00 2.36 18% Mutual fund management Dedicated management Institutional 1.20 2.85 3.47 22% Employee savings 0.12 0.15 0.48 220% Total 2.92 5.00 6.31 26% Institutional 0.60 1.25 1.69 35% Dedicated employee savings 0.40 0.65 0.81 24% Total 0.60 1.90 2.49 31% Total 3.52 6.90 8.80 27% (Source: Novethic as of 12/31/2005) French residential SRI market: Analysis by type of management (Source: Novethic as of 12/31/2005) 4
French residential SRI market: Retail and institutional investors (in billions of euros) 2003 2004 2005 2004/2005 Institutional investors Retail investors Pooled management 1.20 2.85 3.47 22% Dedicated management 0.60 1.25 1.69 35% Total 1.80 4.10 5.15 26% Retail management 1.60 2.00 2.36 18% Employee savings 0.12 0.80 1.29 61% Total 1.72 2.80 3.64 30% Total 3.52 6.90 8.80 27% (Source: Novethic as of 12/31/2005) French residential SRI market: Analysis by type of investor (Source: Novethic as of 12/31/2005) 5
Pooled management (FCPs and Sicavs) At the end of 2005, SRI mutual fund units held by French residents represented a total of 6.02 billion euros in assets, an increase of 20% in one year. Of this total, 58% is owned by institutional investors, 39% by retail investors (via sales through banking channels) and 3% is in the form of employee savings. Inflows from retail investors grew by 18% in 2005, confirming the appeal of SRI products in the retail investment management segment. However, it remains difficult to determine if this increase in assets under SRI management is due primarily to a rise in inflows from savers with a growing interest in SRI, to the existence of new SRI products on the market, or to the overall strength of the equity markets. Institutional investors (includes insurance companies and direct writing mutuals, financial institutions and operators, pension funds and, to a lesser extent, religious organizations and foundations) saw a 22% rise in assets under SRI management in 2005, growth that pales in comparison to last year s spectacular 138%. This year, the most significant increase comes from employee savings invested in mutual funds, with 185 million euros. Although the total represents less than 3% of all SRI funds under pooled management, growth nonetheless was 23%. 1 Employee savings Overall, and taking into account FCPE SRI ranges (295 million euros) and dedicated FCPE (805 million euros) vehicles, employee savings invested in SRI totaled 1.29 billion euros at year-end 2005, an increase of 61% since year-end 2004. The emergence of a genuine market for SRI employee savings funds, expected since 2002 and the establishment of the CIES (Comité Intersyndical de l Epargne Salariale), seems to have finally taken off in 2005. At the same time, total employee savings invested and managed in accordance with SRI criteria accounts for a little under 2% of all managed employee savings. Employee interest in SRI management has gathered momentum, but still has further capacity to grow. 1 If we include assets managed in pooled vehicles in the SRI FCPE range, the increase is 220%. See table entitled French residential SRI market, pooled and dedicated management. 6
Dedicated management for institutionals: SRI approaches and integration SRI APPROACHES More than half of the asset management firms present in the SRI pooled management market that responded to the survey said they also manage SRI funds in the form of dedicated vehicles for French institutional clients, and that the total is 1.69 billion euros, of which 890 million euros managed by French firms. 2 The satisfactory growth of 35% observed between 2004 and 2005 should be put into perspective, however, particularly the sums managed for foreign investors by the French asset management firms that participated in the survey. Taking these assets into consideration (managed two-thirds by French firms and one-third by non- French firms operating in the French market), the aggregate total is estimated to be 30 billion euros. However, it looks like 2006 and 2007 will be watershed years for SRI AUM growth. The outcome of the 600 million euro RFP conducted by the Fonds de Réserve pour les Retraites (the FRR) will be made public sometime this spring. The ERAFP (Etablissement pour la Retraite Additionnelle de la Fonction Publique) also officially announced in early April its intention of becoming a socially responsible institutional investor across the board. Other institutional investors have followed suit, including AGIRC-ARCCO, which stated that it will soon be ready to adopt an SRI approach on an experimental basis for a portion of its invested assets. Taken together, these events should have a profound impact on the third-party dedicated institutional market in France. While foreign institutional investors that are clients of French asset managers are, for the most part, public and government organizations, the French institutional investors engaged in SRI via dedicated management are mainly foundations (50% of the funds managed by French asset managers), religious organizations (24%) and non-profit organizations (18%). By and large, the most traditional SRI clients continue to dominate the scene today. Pension funds, mutuals and provident organizations have not yet taken the plunge into dedicated SRI management, although they maintain an investment presence in SRI mutual fund management. Institutional (foundations, churches and non-profits) funds under dedicated SRI management with French asset managers give preference to investments in equities (64%), within the Euro area and Europe (74%), and in publicly-traded blue chip stocks (88%). 2 Asset management firms that do most of their SRI mutual fund management, marketing and sales in France. 7
On an extra-financial level and unlike 2004, exclusive approaches (70% of the assets concerned) gained slight ground over inclusive approaches (64% of the assets concerned) in 2005. While these two screening strategies are complementary, the statistics demonstrate the appeal of negative approaches, particularly those that rule out investments on the basis of violations of international standards in human and/or worker rights. As far as positive approaches are concerned, sustainable development strategies of the best in class type are the rule. The emerging trend in shareholder activism (23%) mostly concerns the active exercise of proxy voting rights on corporate governance matters. Although dedicated management grew more rapidly than pooled management in 2005, French institutional investors continue to be present in SRI mostly via investments in OPCVM mutual funds (66% of their invested assets), rather than via dedicated vehicles. This situation is expected to change in the next two years, however, with the stepped-up involvement of key public institutional investors in France. SRI INTEGRATION In previous surveys, Novethic s work was strictly focused on fully deployed practices related to the selection of assets based on extra-financial criteria and shareholder activism on the part of asset management firms servicing a clientele composed of institutional investors. This year, we have incorporated a new demand that seems to have become well-entrenched among these investors: the transversal integration on a case by case basis of extra-financial criteria in the conventional process of financial analysis. Accordingly, we have tried to account for these sums, managed with more or less concern for integrating socially responsible considerations into the selection and management process, without nonetheless blurring the distinction with respect to full-fledged and openly acknowledged SRI approaches. Without going so far as the adopt a formal SRI approach, some French institutional investors have nonetheless started to demand that the asset management firms they do business with take into consideration certain environmental, social and corporate governance concerns, both in the construction of portfolios and in the voting of proxies. Thanks to the survey conducted in 2005, we were able to identify assets totaling 5 billion euros that correspond to this integration approach. We have also identified one large French institutional investor (which manages its assets internally) that is gradually moving toward integrating social and environmental issues across the board. 8
Leaders in the French SRI market Six French asset management firms manage more than 600 million euros, mostly invested in mutual-type funds. They are AGF AM, BNP Paribas AM, AXA IM, Macif Gestion, I.DE.A.M and Natexis AM. The most prominent asset managers in dedicated management for French institutionals (outside the integration approach) are Dexia AM, BNP Paribas AM, HSBC Investments and Ixis AM. The strongest asset managers in the field of dedicated management for French institutional investors if integration approaches are includes are Crédit Agricole AM, AXA IM, Capital International and Groupama AM. The two leading players in SRI employee savings management are AXA IM and Natexis AM. On a European scale, the three asset managers with the greatest commitment to SRI are Dexia AM, BNP Paribas AM and Sarasin AM. 9
SURVEY CONDUCTED BY Stéphanie Giamporcaro-Saunière Head of SRI Research Thomas Fressin SRI Intern at Novethic Jean-Pierre Sicard Chairman of Novethic SPECIAL THANKS TO Novethic wishes to thank all asset managers who took the time to respond to its questionnaire and who place their trust in us. ABOUT NOVETHIC: A subsidiary of Caisse des Dépôts et Consignations, Novethic is a leading center for resources, information and expertise pertaining to SRI and corporate social and environmental responsibility. Its web site (www.novethic.fr) is a comprehensive resource for responsible economic actors. Media contact: Garance Bertrand - garance.bertrand@novethic.fr - +33 (0)1 58 50 98 21 10