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ESG roundup: German attitudes towards sustainability, PPF, IMA

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  • ESG roundup: German attitudes towards sustainability, PPF, IMA

GLOBAL – The attitude of German institutional investors towards sustainable investment strategies has improved slightly, according to an index compiled by professor Henry Schäfer of Stuttgart University on behalf of Union Investment.

The sentiment index for sustainable investment rose this year by nearly 1.5 points to +5.41 points on a scale from -100 to +100, indicating that underlying sentiment remains positive.

On the whole, institutional investors are frequently guided by the values of their own institution – 86% – but portfolio-management aspects also play a key role.

For example, 56% of respondents indicated that they intend to use sustainable strategies to optimise risk management.

Bonds dominate sustainably managed investments, with a share of 45% and rank ahead of real estate with 20% and equities with 14%.

A slight decrease in scepticism was detected among investors that do not take any sustainability factors into account when investing.

Schäfer said: "However, from the perspective of respondents who are critical of the sustainability issue, there does not appear to be any clear impetus for a change in direction.

"As 54% indicated, the absence of specific requirements in investment guidelines is the main factor curbing demand from this group."

Their scepticism regarding sustainable investment strategies is also fuelled by fear of inferior returns – at least that is the view held by 36% of institutional investors that are not invested sustainably.

Alexander Schindler, the member of Union Investment's board of managing directors responsible for institutional client business, said: "Such a stance is surprising because most academics are coming to a different conclusion."
 
During a meta-study commissioned by Union, researchers examined a total of 195 scientific studies to determine the difference in performance between sustainable investments and conventional investments.

It demonstrated that the performance of sustainable investments is definitely not inferior, and that sustainability factors can be used as risk filters.

Almost half of the respondents, 48%, stated that they currently take sustainability criteria into account when making investment decisions.

Charitable foundations, churches and large companies give sustainable criteria a particularly high priority compared with other investment criteria.

All respondents believe that changes in regulatory requirements and in the risk environment will provide the greatest impetus for sustainability.

A total of 67% attach great importance to these areas for the future of sustainable investments.

More than 200 institutional investors such as banks, insurance companies, corporations, pension funds and charitable foundations, which together hold assets in excess of €1trn, were surveyed in spring for the compilation of the 2013 index.

In the UK, meanwhile, the Pension Protection Fund (PPF) has unveiled an enhanced responsible investment (RI) framework, which reinforces its commitment to responsible and sustainable investment.

It includes the implementation of a unique RI manager approach across nine asset classes and the strengthening of the oversight of its voting and engagement manager.

Martin Clarke, executive director of financial risk, said: "Over the last three years, we have seen a vast improvement in the way our external managers are adopting RI.

"Thirty percent of our managers are now rated higher on their commitment to RI than when we first hired them. With our investment portfolio expected to rise to £22bn (€25.9bn) in the next three years, our commitment to responsible and sustainable ownership becomes even more important."

Along with its voting and engagement services supplier, Hermes EOS, the PPF will exercise closer scrutiny and oversight of the stewardship activities conducted on its behalf.

The new Statement of Stewardship Principles – which formally sets out how the PPF acts as a responsible owner of the companies in which it owns listed shares – and the new approach to rating external managers for their commitment to responsible investment have been published on the investment pages of the PPF's website.

The latter is based on five performance areas: alignment, ESG integration, stewardship, resources and reporting.

In other news, institutional investors were found to continue to give priority to issues surrounding corporate strategy and objectives when engaging with investee companies, according to the Investment Management Association's (IMA) latest report on adherence to the Financial Reporting Council's (FRC) Stewardship Code by asset owners, asset managers and service providers.

Strategy and objectives, together with board remuneration, were the most frequently addressed issues, with collective engagement between institutional investors continuing to help meet aligned objectives.

Liz Murrall, IMA director of corporate governance and reporting, said: "Institutional investors engage on wide-ranging issues related to the long-term strategy and objectives of businesses.

"In particular, the case studies in relation to a proposed acquisition by G4S and the Xstrata/Glencore merger are examples of how investors successfully engaged and helped steer the direction of these companies to protect or add value for shareholders – the true end clients.

"The report shows more people are signing up to the FRC's Stewardship Code, from 75 signatories in 2010 to 241 in 2012, and it is having a positive impact in practice."

The study also found an increase in monitoring, with 76% of the 2012 respondents monitoring all investee companies as part of their investment process, compared with 70% in 2011.

Voting levels increased in all markets in 2012, suggesting that overseas markets are becoming more accessible.

A greater proportion of respondents vote all their UK shares – 88% in 2012 compared with 86% in 2011 and 81% in 2010.

No respondents in 2012 followed service providers' recommendations without giving due consideration themselves as to how they voted, whereas in 2011, 4% of respondents stated they always followed such recommendations.

The IMA received responses from 103 institutional investors – including 73 asset managers and 23 asset owners – covering the year to 30 September 2012.

The full survey can be found here.

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