Study published: ‘On the credibility of sustainable equity funds’

The core of the study is the development of a model for calculating a credibility score (GSC) for SRI funds (Sustainable or Socially Responsible Investment). Using up to 31 criteria across the three areas of performance, socio-economic impact and reporting, it is possible to assess whether a fund communicates and operates credibly; the result is presented on a rating scale from A (‘full credibility’) to F (‘no credibility’).

The model thus addresses the problem that previous measures – such as the awarding of the transparency logo to signatories of the Eurosif Transparency Code and the matrix developed by the Forum for Sustainable Investment (FNG), which was designed as a guide for investors and financial advisers, are based on self-reported information from providers. Furthermore, given the high level of complexity involved in the structuring and implementation of sustainable investments and the increasing opacity of the market, an increase in transparency alone is not sufficient to provide retail clients with an adequate basis for investment decisions.

The author of the study, Jörg Kroschinski, nevertheless demonstrates a close link between the GSC, the Transparency Code and the FNG matrix. His empirical analysis shows that 75 per cent of the funds rated highest under the GSC use at least one of these two instruments. However, of the funds ranked in the middle of the field, whose credibility was assessed as ‘limited’ or ‘significantly limited’, half were still signatories to either the Transparency Code or the FNG Matrix.

A total of 57 SRI funds were tested; those with the highest credibility scores are presented as examples of best practice.