Socially responsible investment funds (SRIF) are collective investment instruments that choose the assets that make up their portfolio based on environmental, social and governance criteria (ESG). These eligibility criteria contribute to making better-informed investment decisions, taking into account not only financial criteria, but also less tangible parameters.
“Adopting socially responsible investment criteria is not a fad, or a naively well-intentioned initiative, or something you do to sleep better at night, but a sensible and rational way of investing to generate a better return-risk profile and to meet our customers’ future demands," says Alberto Estévez, Head of SRI at BBVA Asset Management. “Socially responsible investment is here to stay.”
SRI funds can be shaped taking into account exclusion criteria when choosing the assets; inclusion criteria for businesses or governments applying proactive social responsibility policies, even specific ESG-related topics (such as climate change or water.)
SRI funds normally exclude from their portfolios sectors that do not meet basic social responsibility eligibility criteria, such as the tobacco and arms industries. Another screening criteria is the level of accession - or lack thereof - to the UN Global Compact, the world’s largest voluntary corporate citizenship initiative. Companies with poor ESG scores may also be left out of these portfolios.
An SRI fund asset portfolio usually includes companies or governments with the best environmental, social and governance scores (for instance, those applying policies aimed at curbing their carbon footprint, reduce poverty or foster gender equality.) “For us, corporate governance is the strongest pillar of ESG criteria,” explained Alberto Estévez. “Governance has been proven to be key to generating long-term profits and benefits,” he said. Ultimately, a company with solid corporate governance is a well-managed company, and this reduces long and medium term risk.
Socially responsible investment funds, just like any other fund, seek to maximize medium and long term returns. SRI fund managers consider that assets that meet certain ESG standards are likely to yield higher returns, while reducing the portfolio’s risk: these are well-managed companies, with robust corporate governance policies, aligned with the shareholders, which care for the environment and minimize potential regulatory, litigation and reputational risks to generate greater long-term value.
“By adopting SRI criteria we make better investment decisions, because they are more complete. For example, in variable income, in 1970, intangible values represented 17 percent of a company’s value, compared to 87 percent today. SRI criteria help unveil a large portion of this value,” said Alberto Estévez.
BBVA Sustainable Future
BBVA recently launched in Spain BBVA Sustainable Future, a fund for conservative investors, managed following SRI criteria, that completes the Group’s range of socially responsible funds in Spain. BBVA Sustainable Future is a global asset allocation fund which invests in both corporate and public debt, credit and variable income assets applying ESG criteria.
The fund leverages the full power of BBVA Asset management’s asset allocation process, observing the same active and thorough risk control management and diversification principles.
“Additionally, to choose the best fixed and variable income assets, it applies environmental, social and governance criteria. We seek to invest in high-quality companies and governments, committed to sustainable practices,” explained Alberto Estévez.
BBVA’s range is completed with BBVA Sustainable Development, an SRI equity fund, with a higher risk profile than the previous one.
BBVA’s Pledge 2025
In line with the European Commission’s Action Plan on Sustainable Finance, BBVA recently announced its Pledge 2025, the bank’s climate change and sustainable development strategy. designed to make progress in the achievement of the UN Sustainable Development Goals (SDGs) and the Paris Climate Agreement.
This eight-year commitment (2018-2025) builds on three pillars: financing, management and commitment. BBVA has pledged to mobilize €100 billion in green and social financing, sustainable infrastructures and agribusiness, social entrepreneurship and financial inclusion.
In its commitment to manage environmental and social resources and minimize potential direct and indirect negative impacts, BBVA has committed to source 70% of its energy consumption from renewable sources by 2025, and to reduce its level of CO2 emissions by 68% from 2015 levels.
In addition, BBVA has agreed to engage all its stakeholders to boost the financial industry’s contribution to sustainable development.