User:Equicoop

There is no official definition of Alterfinance. Most of time SRI (Social and Responsible Investment) are self-proclaimed financial services. Financial services authorities do still not certify this class of assets. This is a preconception of investors to include extra-financial criteria in their bonds selection. It trusts on overweighting issuers in portfolio with better environmental, social and governance (ESG) practices.

ESG practices Overtime during the last 10 years, critical issues such as global warming, corporate governance and generally sustainable development have progressively change part of economics. So that, some asset managers settled niches by setting up alterfinancial services while reforming their financial analysis including more than financial data. These lucid asset managers met the expectations of investors that have already started looking for maintaining financial performance by decreasing their doubtable assets.

Since financial crisis of 2008, mainstream asset managers improve their control in transparency and governance. That was the opportunity for the most militant of them to empower ESG analysis and position SRI funds as a real marketing strategy.

That’s why for three last years, such SRI funds are skyrocketing but the concepts behind them remain obscure… First of all, it’s important to distinguish ESG integration, which is independently applied one by one company, from SRI funds that involves systematic assimilation of standardized ESG criteria in investment decisions. Generally, it simply take in account extra-financial direct risks company performance. Seeing the glass as half-empty or seeing it as half-full… with these new conditions, the notion of performance is definitely under shake-up.

Consequently we started to talk about alterfinance services are implemented through several approaches often combined:

Sector-based exclusions Prohibiting companies that generate most of their revenue from activities deemed damaging for humanity. It generally refers to ethical exclusions of sectors such as weapons, alcohol, pornography, tobacco, and gambling or exclusions for environmental issues in cases of oil sand energy, Genetic Modified Organisms, etc.

Norm-based exclusions Exclusion of issuers violating internationally recognized norms or conventions, such as the UN Global Compact principles, which encompass the universal declaration of human rights, the United Nations convention against corruption, the Rio declaration on environment and development, and the International Labour Organization’s declaration on fundamental principles and rights at work.

Ethical funds The references to sector-based exclusions funds, ethical funds are now often used to designate all alterfinance services, including funds based on ESG selection process.

Activity based approach The sector approach can be applied to the whole portfolio or limited to a percentage of the total assets. It can also lead, when combined with ESG selection, to overweighting the environmental, social or governance dimension in company ratings. It results thematic alterfinancial products consist in choosing investments in themes related to sustainable development such as new clean energies, medicine, water access, or more generally aging, eco-efficiency, global warming, etc. Firms can fit if their turnover from selected activities is crossing a certain stage of acceptability, or if they are among the best on their market. According to main actors of alterfinance, both sector-based and thematic approaches cannot, alone, qualify as alterfinancial products, since issuers are not evaluated on their ESG performances. To be skilled as alterfinancial management, these activity-based strategies have to be shared with systematic practice-based methods such as ESG evaluation, norm-based certifications or engagement as continuous improvement loop.