Cultural change underway in Germany with regard to ESG, says Union Investment

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  • Cultural change underway in Germany with regard to ESG, says Union Investment

GERMANY - A cultural transition is underway among German investors with regard to environmental, social and governance (ESG) or sustainable investments.

Although German pension funds have historically struggled with the concept of sustainability, the mood among investors - such as pension funds, asset managers and even corporates - has changed over the last 12 months due to external pressures and a different perception, according to Union Investment.

Thomas Fleck, managing director at Union Investment Institutional, told IPE: "The German market sometimes adopts certain developments later than its UK and Nordic counterparts, but once it does, it incorporates them all the more dynamically."

The main reason for this change is the recognition that taking sustainability into account contributes toward the minimisation and optimisation of risks, while in the past it was mainly associated with a loss of returns.

Fleck said: "Institutional investors have recognised they can influence corporates - through engagement, for example - and thereby create stability in companies and contribute toward solidarity in society.

"They have also realised they do not need to have an equities culture, like UK and Nordic pension funds, to integrate ESG because, despite its origins lying in equities, sustainability can be just as easily applied to corporate and other bonds.

"In addition, investors have become aware of the added value opportunities of sustainability."

Events such as the nuclear accident at Japan's Fukushima plant also helped boost the theme, while pension funds today are also under more moral pressure from society to invest sustainably.

Active ownership or engagement is trailing the more classical sustainability approaches such as best-in-class or negative screening among German pension funds, according to a sustainability study by Union Investment.

However, Fleck expects engagement to grow substantially in the pursuit of added value.

He believes that, at present, investors believe asset classes such as global equities can be refined through themes such as sustainability, but that, in future, ESG could become a primary play.

Fleck estimates the German sustainability market to be at around €13bn at present, with the few pension funds that are already investing sustainably being large funds, as well as public.

The Union Investment study has revealed that a sentiment indicator for sustainable investment by German institutional investors stands at +22 points on a scale from -100 to +100.

It also found that even those investors that do not currently invest sustainably believe the theme will only gain in significance.

The report can be found here.

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