Keywords

60.1 Introduction

EUROSIF report (2014) refers to sustainable and responsible investments (SRI) defining them as “any type of investment process that combines investors’ financial objectives with their concerns about environmental, social and governance (ESG) issues.” This innovative way of investing has a potential to change financial markets landscape diverting it from purely financial gain-seeking. Thus, it is crucial to understand how big is the market size for SRI (SRI market size is understood as the value of assets under management following SRI criterions). This issue is significantly under-investigated in Central and Eastern Europe Countries. The only report on SRI market size in Poland, which is the biggest financial market among CEEs, is EUROSIF report (2014). EUROSIF report is based on a survey among institutional investors and may suffer from self-reporting biases. This paper attempts to examine SRI market size in Poland by exploiting alternative method—a content analysis, where estimation of SRI market size is based on analysis of documents, whose preparation is guided by legislation and industry standards, which reduces self-reporting biases.

60.2 Socially Responsible Investment Market Size—Literature Review

Socially responsible investing (SRI), also known as ethical investing, refers to the integration of environmental, social and corporate governance considerations (ESG) into the investment process. Pasewark and Riley (2010) put forward that terms “socially responsible investing” and “ethical investing” became popular in the 1990s. Since the financial collapse is caused by the subprime turmoil, SRI is sometimes even considered as an answer to the crisis of capitalism (Capelle‐Blancard and Monjon 2012; Nofsinger and Varma 2014). The observed increase in SRI share in the financial market and the potential impact of SRI decisions on firms’ non-financial policies and performance is believed to become a very powerful mechanism to influence business practices (Crifo and Mottis 2013), i.e., it is argued that companies who attract financial resources from socially responsible investors face less capital constrains (Cheng et al. 2014). Thereof, the role of institutional investors creating SRI market appears as crucial.

Literature sources analysis shows a widespread conviction that the change in the business landscape is actually possible. Many scholars are impressed by the fact that SRI from a niche phenomenon turned into a financial market feature (Berry and Junkus 2013), and a claim SRI has to became a market reality, if not a force (Park and Kowal 2013). Most of studies, which contribute to this belief (e.g., Lean et al. 2015; Sandberg 2013; Escrig‐Olmedo et al. 2013), are based on SRI market size estimation provided by EUROSIF report as Europe is the largest SRI market in the world.

Poland, which is the biggest financial market in Central and Eastern Europe (CEE), seems to be a pioneer of SRI among CEE countries. The first sustainable index was launched in Warsaw in 2009 (GPW Respect). Thereof, knowledge on SRI market size in Poland can contribute to predicting on how SRI may develop in CEE countries. However, information on the size and types of investments on Polish SRI market can be found rarely in the literature. There are two recent studies investigating the issue that are most commonly used as a source of such data.

The first, most often quoted study, is EUROSIF report (2014). The report is a joint product between Eurosif and its national member SIFs, and it is based on a survey among all European professional investors (the study covers 13 national markets—including Poland). The respondents were asked to report on data from December 2013. The report does not inform on how many respondents actually filled in the questionnaire, and it only states that some major players did not respond. Missing data were supplemented by secondary information sources, including data from 2011. The report informs that SRI market size in Poland is 12.6 bln PLN.

The second study is a much less known report of Pracodawcy RP (2011). This report presents, among others, the results of a survey conducted among Polish institutional investors. The method was a telephone interview. From among 87 institutions selected for the interview, only 10 agreed to answer all 18 questions. The study revealed that institutions make their investment decisions on the basis of financial criterions. Little attention is paid to environmental and social issues. The report does not inform which institutions revealed their practices; thereof, it is not possible to investigate their capital investment market share.

Since mentioned SRI studies are both based on surveys, they both may suffer from a number of biases. The first is self-reporting bias anchoring respondents who might be susceptible to respond in socially desirable way (Donaldson and Grant-Vallone 2002). The second is the white-hat effect biasing the participants’ answers to disregard facts and distort the truth to serve righteous ends (Cope and Allison 2010) (e.g., promoting SRI). These biases impair the validity of research.

Concerning a significant knowledge gap, it is important to provide a new insight into the problem of SRI market size in Poland.

60.3 Research Design

In search for reliable source of information on SRI, it is inevitable to pay particular attention to documents issued by institutional investors. Annual reports, statutes, prospectuses, corporate social responsibility (CSR) reports, mission statements and Web sites are all under strong regulatory, industrial and social screen. Thereof, it is highly probable that they provide reliable information on investment strategies and policies, including ESG criterions embedded in investment decisions. Formal and informal rules guiding non-financial information reporting in the area of CSR and sustainable reporting practices will be presented in this part of the paper.

Directive 2013/34/EU on the annual financial statements as well as Polish legal acts on accounting (Ustawa o Rachunkowości 2013; Krajowy Standard Rachunkowości Nr 9 2014) regulate that reports should include, apart from financial information, information about impact on the natural environment, employment and other information. National Accounting Standards No. 9 devoted to the Activity Report suggest including information about social responsibility, environmental protection activities, policies and activities in those areas. It states that any reports on environmental impacts, intellectual capital and corporate responsibility should be an integral part of the Activity Report. However, not all non-financial is formally required. The companies that are characterized by the highest transparency in reporting non-financial data related to all ESG areas are banks mainly (Czerwińska 2013).

The reasons for banks outperforming other sectors are numerous. Prevailing part of financial institutions which operate on Polish market, belong to multinational financial groups—from among many follow UNEP Finance Initiative principles. UNEP Finance Initiative indicates rules that institutional investors should follow to act in the best long-term interests of their beneficiaries and to respect environmental, social and corporate governance issues affecting the performance of investment portfolios. One of this principles states that institutional investors should report on activities and progress toward implementing the principles.

UN also formulated the Global Compact Initiative, which was joined by ten financial institutions in Poland. CSR reporting is also strongly enhanced and systemized by international standards, whose best examples is Global Reporting Initiative.

Other sources of ESG and SRI rules, i.e., Guidelines for Multinational Enterprises (OECD 2011) indicate that enterprises should apply high quality standards for non-financial information including environmental and social reporting where they also disclose information on relationships with employees and other stakeholders.

Mentioned principles have been operationalized in audit and certification systems such as the Social Accountability 8000 system or International Standard Organization (Berry and Junkus 2013).

Apart from legal regulations indicated by worldwide organizations, ESG reporting may be enhanced by accompanying economic performance of companies following ESG, due to the fact that benefits resulting from reporting on commitment to social responsibility are multiple and significant (Hahn and Kühnen 2013; Hess 2014). Companies are aware of this benefits, which is confirmed by numerous studies that identify an abundance of positive information in corporate sustainability reports and a lack of negative voluntary disclosures (e.g., Calace et al. 2014; Lougee and Wallace 2008; Holder-Webb et al. 2009). This notice is supported by the observation that at the Web sites of all Polish banks and insurance companies there is easily detectable information of this institutions’ contribution to solving diverse social and environmental problems.

Following the above reasoning, it is assumed that institutional investors, who commit to sustainability by embedding ESG criterions in investment decisions, face numerous formal and informal incentives to report on it. Thereof, it is argued that it is very probable that institutional investors, who follow non-financial criterions in their investment practices, communicate it to their stakeholders using their main communication tools: published documents and Web sites.

The qualitative content analysis is a widely used qualitative research technique for systematic text analysis. As a research method, it is a systematic and objective mean of describing and quantifying phenomena (Krippendorff 2012). It is often exploited as a method of analyzing documents. Text data might be in verbal, print or electronic form (Kondracki et al. 2002). Qualitative content analysis is based on explicit rules of coding. Coding can be a priori or data-derived (Sandelowski 2000). It is oriented at detecting words used in communication of phenomena, which are under research. The coding allows for systemic word-frequency counting; however, it has to be verified through checking the context, because some words can have more than one meaning (Vaismoradi et al. 2013).

For the purpose of the study, the documents issued by Polish institutional investors, including banks, insurance companies, mutual funds and pension funds, were analyzed. Final set of documents included: annual reports (banks, insurance companies), prospectuses and Web sites (pension funds, mutual funds), CSR reports (banks, insurance companies) and statutes (banks, insurance companies), thereby all documents, where institution’s investment strategy, can be communicated to investors (Table 60.1). The documents were obtained via institutions Web sites or the Web site of Polish Financial Supervision Authority. The documents were gathered in October 2015.

Table 60.1 Documents published by Polish institutional investors screened under the content analysis scheme
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The coding was partially prepared a priori and partially derived in the study. The a priori coding resulted from the review of the literature on SRI. It allowed for preparing of a list of words, which describe socially responsible motives of investment decisions (e.g., ethics, moral, good, sustainable, society, common good, environment, protection, nature, contribution, non-financial, noneconomic and green). Then, the material was reviewed to prepare the list of words used to describe investment practices and investment strategy (e.g., investment strategy, practices, portfolio, choice, locate, buy and acquire). The coding was done in Polish, because the documents analyzed are in Polish.

The content of above-mentioned documents was analyzed twice, following two approaches. Under the first approach, all information about institutions attitude toward social responsibility was scanned to find, if there is any reference to investment strategy or investment practices. Under second approach, all information on investments strategy and practices was scanned to find, if institutional investors declare to follow motives other than economic ones (return, risk, time-scope, branch and geographical area). Since SRI includes investing in “ethical” or “green” sectors (e.g., renewable energy), it was checked if any declared sectorial specialization can be attributed to as SRI.

60.4 Results and Discussion

The content analysis revealed that there are institutional investors, who inform on embedding ESG criterions in their investment practices. Such investors can be acknowledged as SRI investors. However, such practices are rare. Detailed results are presented in Table 60.2.

Table 60.2 Polish institutional investors communicating embedding ESG criterions in their investment decisions
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The number of Polish SRI institutional investors is very small; however, to provide a proper insight into the SRI market the value of assets allocated following ESG criterions should be examined as well.

The first segment of institutional investors analyzed in respect to the value of SRI assets constitutes of investment fund management companies and investment funds. There are 61 investment fund management companies and investment funds authorized by Polish Financial Supervision Authority. In October 2015, they offered 1232 funds. Their asset value accounted for 1,838,825,000 PLN. The names of 1232 funds were scanned to find out, if they inform about the profile of a fund. In case of doubts, the fund management company Web site was scanned in order to find information about such fund. It was discovered that some funds are named as “sustainable”; however, the context of this word does not refer to SRI. This word is used to inform about the risk–return profile of a fund. Thereof, the coding context approach resulted in excluding such funds from the list of socially responsible investment products.

It was discovered that only 20 out of 1232 funds (1.5% of funds offered) be identified as a broadly defined SRI products. However, only 11 out of these 20 invest in Poland (EUROSIF report investigates only investment located at domestic market). These funds are presented in Table 60.3.

Table 60.3 Socially responsible investment funds in Poland, 2015
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In case of only 6 out of 11 of SRI products offered by mutual funds, it was possible to gain information about their assets value. Assets value exceeds 1,931,941 thousands of PLN. It accounts for 1.1% of all investment funds’ assets value. Five funds listed in Table 60.2 do not publish information on their assets value. In case of two of them, it is debatable if the fund can be acknowledged as SRI or not. This first case is ALTUS Kompleksowe Rewitalizacje i Odbudowa Polskich Kamienic. The fund focuses on revitalization and reconstruction of Polish tenement houses. This can be regarded as protection of the national heritage (and thus seen as SRI); however, at the same moment this can be no more than conventional profit-aimed investment in the real estate. In the second case—BPS TFI Uzdrowiska Polskie Fundusz Inwestycyjny Zamknięty, the investment fund locates capital in Polish baths (spas). Financing health is definitely socially desirable; however, it is possible that the fund invests only in cosmetic services, which does not distinct from other ways of allocating capital. Another three funds, which do not publish data, are ecological funds.

The next analyzed group of institutional investors was pension funds. There are 12 open pension funds, and their long-term and short-term financial assets value in October 2015 was more 2,161,242 thousand of PLN. The analysis of prospectuses of pension funds revealed that none of them embed ESG criterions in their investment decisions. Thereof, pension funds do not contribute to SRI sector in Poland at all.

Another group of institutional investors are banks. There are 37 banks in the form of joint-stock companies in Poland. Bank sector in Poland in September 2015 held financial assets (excluding credits) worth 1,521,613,318 thousand of PLN. Banks statuses, annual reports and reports on social responsibility were reviewed under the scheme described above. The analysis revealed that only two banks inform about embedding ESG criterions in their investment decisions: Bank Zachodni WBK and Deutsche Bank Polska. However, they do not inform neither about the share of their investment, which is guided by non-financial criterions, nor about socially responsible strategy they follow. Additionally, Deutsche Bank Polska (2014a) informs about its commitment to SRI not on the Polish Web site, but on the Web site of the Deutsche Group. It is thereof not clear, if the ESG guided investment strategy is applied in Poland. The value of corporate bonds and shares owned by Bank Zachodni WBK in October 2015 was accounted for 4,533,000 PLN (Bank Zachodni 2015). The value of corporate bonds and shares owned by Deutsche Bank Polska in this period was accounted for 9,512,000 PLN (Deutsche Bank Polska 2014b). It can be assumed that at least part of this value is SRI.

The last group of institutional investors are insurance companies. In Poland, there are 49 insurance companies operating as joint-stock companies (including 25 life insurance and 24 non-life insurance companies). There are also 10 mutual insurance companies. Their financial assets value in September 2015 accounted for 102,409,496 thousand of PLN. The review of their statutes, annual reports and social responsibility reports revealed that none of them informs about including ESG criterions in making investment decisions.

The content analysis oriented at exploring the market size of SRI in Poland demonstrated that only two banks and eleven investment funds report on embedding ESG criterions in their investment decisions. Data on assets value are available in case of 6 out of 11 mentioned funds. The sum of assets allocated with regard to ESG criterions in the 3rd quarter of 2015 was about 1,945,986 thousand of PLN and accounted for about 0.13% of institutional investors financial assets (excluding credits and remittances from the insured).

The content analysis of documents published by Polish institutional investors revealed that they publish very few information confirming embedding ESG criterions in their investment decision. Taking into consideration the fact that institutional investors are formally and informally encouraged to report on their commitment to social responsibility, we argue that lack of information on investing in socially responsible way is connected with actual lack of following SRI practices by the predominating part of Polish institutional investors.

This conclusion, however, still can be challenged by pointing at the possibility that institutional investors may embed ESG criterions in their decision making and at the same time may not report on this. Such situation is possible if institutional investors strive for achieving environmental and social goals when their stakeholders (certificate owners, shareholders, depositors, etc.) are not willing to follow goals other than financial ones. This, however, should be acknowledged as manifestation of agency conflict, where agent—institutional investor—pursues its goals at the cost of a principal (depositor, investor). Cheng et al. (2013) find support for SRI as overspending on social and environmental goals being in fact a failure to comply fiduciary duties (doing good with other people’s money). Answering to this type of challenge on the basis of conclusions from the content analysis requires further studies.

The most striking finding is a huge discrepancy of the SRI market size in Poland reported by EUROSIF, and the value of SRI according to the content analysis of documents issued by Polish institutional investors. EUROSIF report states that SRI in Poland in 2014 accounted for more than 12.6 bln PLN while the content analysis performed by the authors indicates much smaller amount: 1.9 bln PLN. This huge difference cannot be explained by missing data about assets value of 5 investment funds (cf. Table 60.3).

60.5 Conclusion

The content analysis revealed that Polish institutional investors very rarely report on embedding ESG criterions in their financial policies. Assuming that informing stakeholders on commitment to sustainable development is beneficial, we argue that lack of information on investing in socially responsible way is related to actual lack of following SRI practices by Polish institutional investors. This conclusion, however, still can be challenged under agency-relationship assumptions. The problem of SRI market size in Poland thus requires further research, exploiting other research methods and exploring the problem of communication of investment strategy and practices. This conclusion is in accordance with notices that the area of SRI disclosure is still relatively under-researched (cf. Banasik et al. 2010).