The aim of Piraeus Mutual Fund Screening Model is to identify the best funds in their respective category. Previously, we defined the ‘Best’ funds in their category as those demonstrating an optimal combination of high returns, low volatility, organic growth, and a strong likelihood of outperforming their peers and/or benchmarks over the medium to long term. We are now revising this definition to also include funds that exhibit strong Environmental, Social, and Governance (ESG) characteristics.
The incentives for incorporating ESG criteria into the Mutual Fund evaluation process include the following:
a) A significant number of investors – especially institutional ones – require that Piraeus Bank evaluate and incorporate ESG criteria in the investment options it offers.
b) Piraeus Bank Group is bound by European and national regulations to record and report the ESG footprint of the investment products it offers.
c) Contrary to initial expectations, experience has demonstrated that specialized strategies and mutual funds solely guided by ESG considerations, often yield lower returns compared to conventional mutual funds. However, numerous studies have shown that mutual funds, which maintain a high degree of ESG compliance without exclusively focusing on sustainable investments, tend to outperform most other funds in their category. These entities also appear to offer better protection against severe losses. Our own analysis also supports this, showing that funds that screen high versus peers in our original model are the ones with better ESG indicators.
In order to allow for the inclusion of ESG characteristics into our Third Party Mutual Fund Screening Model, we have expanded our existing evaluation process to include several ESG metrics. Consequently, in our new methodology Third Party Funds are now ranked based on both our traditional performance and risk variables as well as a wide array of ESG metrics that capture the funds’ ESG performance and their ability to minimize adverse impact on sustainability factors.