Florent DeixonneHead of Sustainable and Responsible Investments, Lyxor Asset Management
François MilletHead of ETF and Index Product Development, Lyxor Asset Management
INDEX FUNDS ARE WELL-SUITED FOR RESPONSIBLE INVESTMENT
Passive and committed at the same time! According to François Millet, Head of ETF and Index Product Development at Lyxor Asset Management, passive funds can now provide innovative solutions to investors who want to improve their portfolios’ environmental, social and governance profile.
SUSTAINED GROWTH IN THE ESG ETF MARKET
Assets under management have reached EUR 6.7 billion in Europe (source: Bloomberg), just 1% of the whole ETF market. This segment is still modest but is enjoying sustained growth. Net inflows into ESG ETFs amounted to EUR 1.1 billion in the first quarter. In just three months, net inflows therefore amounted to half of the total for the whole of 2017 (EUR 2.2 billion). The question for investors is no longer why they should invest responsibly, but rather why shouldn’t they if the levels of return or risk are no worse than across the market.
"The question for investors is no longer why they should invest responsibly, but rather why shouldn’t they if the levels of return or risk are no worse than across the market."
CONTRARY TO POPULAR BELIEF, INDEX FUND MANAGEMENT IS FAR FROM BEING PASSIVE WHEN IT COMES TO RESPONSIBLE INVESTMENT
Index fund management is perfectly compatible with this type of investment, and Lyxor is heavily involved in the field. First of all, we play just as much of an active role as shareholders for our passive management as for our active management. We have drawn up a voting policy, the principles of which have been made public, and we enter into dialogue with the companies in which we invest, through a special team. We also respond to investor demand with an ETF range built on two pillars: ETFs exposed to strong ESG themes and, for allocation in core portfolios, ETFs invested in companies that top the ESG rankings.
CAN WE TALK ABOUT IMPACT INVESTING?
Impact investing is generally associated with unlisted securities and private debt. However, driven by institutional investors, it is spreading to listed equities and bonds. To a varying extent, we see the same key attributes such as intentionality in investment strategies and search for measurability, albeit with a slightly lower degree of impact. Indeed, listed securities have a much greater volume effect, as well as liquidity and freedom as regards investment horizon, thereby attracting more capital. Following on from them, being transparent and easy to set up, and having lower management fees, ETFs are particularly consistent with a responsible approach, and are accessible to a wider audience.
WE PROPOSE THEMATIC INVESTMENT SOLUTIONS...
We are the only ETF providers in Europe to offer ETFs aligned with four the UN’s Sustainable Development Goals. Around a decade ago, we launched a World Water ETF, now with assets under management of around EUR 550 million, as well as a New Energy ETF. We also launched the first Global Green Bond ETF. And since last autumn, we have been offering a Global Gender Equality ETF based on gender equality in the workplace, the first of its kind in Europe.
AND A RANGE BASED ON GLOBAL ESG CRITERIA
The MSCI Trend Leaders range is broken down into emerging markets, the world, United States and European Union. We were the first to launch ETFs invested in a best-in-class selection that takes into account not only companies’ ESG rating but also their efforts to improve this rating.
STRENGTHENED ESG REPORTING TO IMPROVE TRANSPARENCY
We publish very detailed ESG reports for all of our equity and bond ETFs. To do this, we are developing numerous proprietary tools using raw data from external providers, including MSCI ESG research. We will continue to strengthen our reporting and widen our analysis to constantly strive for greater investment transparency.