German institutions give no respite to corporates with active engagement

Germany’s institutional shareholders plan to step up their interaction with companies on environmental, governance and sustainability grounds, however their overall interest towards ESG factors has softened over the past year.

These were two findings in a study published today by Union Investment, recording the views of 200 German institutional investors responsible for €2.44trn of assets. Union conducts the annual study in conjunction with Professor Henry Schäfer of Stuttgart University.

This year 47% of respondents plan to establish or expand their role as active investors, compared to about 42% last year, including influencing companies them with regards to environmental and social criteria and the principles of good corporate governance.

Almost a quarter of investors already use active dialogue as a tool for enforcing ESG standards, according to the study, with just under half seeking help from an external provider.

However, Germany’s institutional investors are generally less enthusiastic about sustainable investments than this time last year. A sentiment index for sustainable investment compiled by Union and Schäfer fell from 22 last year to four this year. The index can go as low as minus 100, to 4 is still a positive reading.

Whereas 64% said that they took account of sustainability criteria when making investment decisions last year, this year the figure was under 50%.

And while 59% said they rank sustainable strategies highly or very highly compared with other investment criteria last year, this fell to 42% now.

Alexander Schindler, the member of Union Investment’s Board of Managing Directors responsible for business with institutional clients, said: “A degree of uncertainty has crept into the evaluation of sustainable investment strategies. Added to which, many investors have apparently shifted their priorities in the wake of the European sovereign debt crisis, because securing the minimum return they require probably takes precedence over everything else, given the tough market environment.

“Sustainable investments are not a fair-weather strategy, though. We must continue working on communicating the economic benefit of these approaches – particularly with regard to risk management. The question of sustainability now arises in all asset classes, from equities and bonds to real estate”, he said.

The respondents seemed to recognise the importance of sustainable criteria in risk management. Last year, improving risk management was a major motive for using sustainable investment strategies for 58% of Germany’s institutional investors, whereas this grew this year to 65%.

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