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management effect is a purely arithmetical effect. It provides insight into important factors influencing asset management decisions, as the aims and the success of asset management decisions are defined and assessed in relation to the benchmark used. As such, the asset management effect contributes to the first research question. ▪ In chapter 6.3 we show whether the application of different sustainability approaches (bestin-class, exclusions, ESG107 integration, engagement, etc.) had an effect on achieving a positive capital allocation (second research question). ▪ In chapter 6.4 we then discuss possible causes for the different findings concerning research questions one and two. The third research question posed in chapter 1 – what framework conditions are needed for an effective capital allocation, and what the current EU framework could contribute in this regard – is answered in chapters 5 and 7.2.
6.1. Capital allocation effect hardly existent The results of our statistical analysis indicate that, so far, sustainability funds in Switzerland and Luxembourg have hardly been able to steer capital towards portfolios containing sustainable economic activities. The capital allocation effect comparing sustainability funds with conventional funds was only partially significant and thus demonstrable: The involvement in major environmental controversies was quite effectively reduced by 0.8 percentage points on average, i.e. by more than two thirds (or 69%108). The improvement of the overall ESG Impact on the environment and society was also significant, but, in contrast, hardly relevant. It improved only slightly by 9%109 resp. 0.04 and thus by half a notch, i.e. half the difference between the ESG Impact grades C- and C. Our study did not reveal any significant capital allocation effect in terms of climate impact (encompassing scope 1-3). To see if a cause for this was that asset managers merely focused on scope 1 & 2 and left out all or most of scope 3, we also assessed for scope 1 & 2 climate impact, which comprises roughly a quarter of the entire climate impact.110 However, we found no significant improvement for the partial climate impact scope 1 & 2 either. This could mean that asset managers did not optimize their scope 1 & 2 climate impact, or that our model data did
107
“ESG” stands for environmental, social and governance factors. This percentage was calculated as follows: 100*(average for conventional funds - average for sustainability funds)/ (average for conventional funds); in this case, the average concerns the % involvement in major environmental controversies (see Table 4). 109 This percentage was calculated from the average ESG Impact score (see Table 4). 110 Inrate Climate Impact data as of 2020, see chapter 3.2.2 for further details. 108
INFRAS | 3 May 2021 | Summary
