Institutional backing of sustainable investing grows in Germany

Germany’s status as a leading centre for shareholder engagement on sustainability and corporate governance was reinforced by research finding two thirds of institutional investors favour using such issues when investing, and most follow this with active engagement.

On average German institutional investors apply sustainable factors to half their assets, but this rises to almost three quarters (73%) for foundations, according to the survey, by Union Investments of 218 large-scale investors managing about €1trn.

Union’s analysis also revealed pensions, insurers and banks hold below-average proportions of their assets – between 32% and 34% – in sustainability programs. Churches and endowments hold 73%.

Alexander Schindler (pictured), member of Union Investment’s board of managing directors responsible for institutional business, said: “In Germany, these investor groups tend to have a fairly small proportion of sustainable investments compared to other countries.

“In Scandinavia, the UK and the Benelux countries, sustainable investment concepts are predominantly driven by long-term investors such as pension funds.”

Schindler expects this trend to spread to Germany as society at large attaches increasing importance to sustainability, and its economic benefits for investors.

Union’s report came in the same week analysis by another German asset manager found allocating to portfolios holding companies with above-average environmental, social and governance (ESG) ratings would have added 1.6% a year more to performance over the five years to September 2010.

While German investors are known for their interest in social and environmental dimensions of investing, asset managers inside and beyond Germany have also engaged robustly with German companies this year on governance, notably involving supervisory boards.

Union’s Schindler said: “All of the survey’s participants – including those who have not invested sustainably so far – assume that sustainability criteria will become more important.”

Some 87% overall, and 92% of pensions, said economic criteria were most closely linked with sustainable asset management. About three quarters of all respondents cited environmental and social criteria as most closely linked. Two thirds said ethical criteria.

Alternative energy was most often named by respondents (82%) as the SRI topic expected to gain importance over 12 months, followed by real estate and natural resources.

Family offices feel best informed about sustainable investing overall (80%), compared to only 42% of pensions, the lowest response.

Three quarters of family office and Mittelstand investors consider sustainable factors strongly or very strongly compared to other investment criteria, while only half of pensions do.

Among those already investing sustainably, 71% said they do so mainly to enhance their image. High demand from customers and optimization of risk management were each cited by about 58%.

However, only 40% said higher expected returns was why to invest along sustainability lines. Among those not doing so, 74% assume it would produce lower returns.

Of respondents considering sustainability criteria, 42% are actively trying to influence companies to apply ESG criteria to management, while around half sustainable investors plan to become more vocal.

Union said: “This seems logical in light of the fact that, of those who are already actively engaged, 74% expect an active dialogue will play a hugely significant role for German investors in future”.

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