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German investors embrace sustainability, but pension funds dragging heels

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  • German investors embrace sustainability, but pension funds dragging heels

GERMANY - Most large-scale German investors favour considering sustainability criteria in their investments, but the proportion of sustainable investments held by banks, insurers and pension funds remains below average, according to a study by Union Investment.

The first sentiment indicator for sustainable investment by German institutional investors stands at +22 points on a scale from -100 to +100 - a sign of investors' positive attitude at the moment, Union said.

Of the large-scale investors surveyed, almost two-thirds (64%) said they took account of sustainability criteria in their investment decisions.

Conversely, around 36% reported that sustainability did not play a role in their decisions.

Professor Henry Schäfer, who created the indicator and holds the chair of corporate finance at the University of Stuttgart, said: "Investors who do consider sustainable investment criteria give them greater weight than other investment criteria. This applies in particular to charitable foundations and large companies.

"The proportion of the total portfolio accounted for by sustainably managed assets also reveals the great significance of sustainable investments. The average proportion of sustainable investments is 50% and is even as high as 73% for charitable foundations."

In contrast, the proportion of sustainable investments held by banks, insurers and pension funds is below average.

The responses from all the institutional investors surveyed show that 87% regard economic criteria as the most important aspect of sustainable asset management, followed by environmental criteria (74%), social criteria (72%) and ethical criteria (65%).

The reason most frequently given - by 71% of respondents - for sustainable investments is image enhancement, while 59% use sustainable investment strategies due to high demand from customers, policyholders or members.

For 58%, it is optimisation of risk management. Higher expected returns play a subordinate role among the respondents who favour sustainable investments, with 40% giving this as the reason.

However, among those who do not currently manage their assets sustainably, the assumption that returns will be lower is the most important reason - given by 74% - for not considering sustainability criteria.

Institutional investors are also increasingly adopting an approach to encouraging sustainability that has not been very widespread until now.

Of the survey participants who do consider sustainability criteria, 42% now see themselves as active shareholders. This means they are actively engaged in trying to influence companies to apply environmental and social (ESG) criteria, as well as principles of sound corporate governance.

Just over half of this group plan to become active investors or step up their involvement in this area. This seems logical in light of the fact that, of those who are already actively engaged, 74% expect that an active dialogue will play a hugely significant role for German investors in future.

Around 64% turn to external providers to help them carry out the tasks of an active shareholder.

The indicator is based on a study conducted by Union Investment in June this year, which surveyed 218 large-scale investors such as pension funds, insurers, charitable foundations, banks and large companies, with total assets under management of more than €1trn.

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