EUROPE - Exclusions have become mainstream in sustainable investments in German-speaking Europe as allocations to the sector continued, according to the Berlin-based industry association for sustainable investment FNG.

After a combined record growth of just under 10% in 2011, the total market volume of sustainable investments in Austria, Germany and Switzerland combined stood at €103.5bn at the end of last year, continuing the upward trend seen in previous years.

Furthermore, policy decisions by investors mean that more than €1trn of investment capital is not being made available to manufacturers of cluster munitions.

FNG chairman Volker Weber said: "The investment strategy of excluding from the outset any investment in ethically questionable areas has become mainstream.

"The fact more and more financial institutions are turning off the tap to manufacturers of cluster munitions represents a huge step forward for all of us."

In 2011, the use of exclusion criteria was followed by the best-in-class strategy as the next most important investment strategy overall in all three countries.

Under this approach, asset managers invest in companies that perform best in terms of sustainability.

The third most popular investment strategy was that of integration.

Germany and Austria - with growth rates of 11% and 62%, respectively - have been the main contributors to the overall growth of the sustainable investment markets in these three countries, which extends beyond the exclusion of manufacturers of controversial weapons.

The sustainable investment market in Switzerland, however, despite the difficult environment, remained stable with an upward trend.

In Austria and Switzerland, institutional investors were able to increase their market shares in the mutual funds and mandates segment.

In Germany, by contrast, this segment saw an increase in the market share of private investors.

However, FNG chief executive Claudia Tober said he expected demand from institutional investors to be the main driving force behind further market growth in all three countries.

"With regards to the future development of the various sustainability strategies, many of those surveyed anticipate that integrating environmental, social and governance criteria into traditional financial analysis is likely to increase in importance," she said.

The 'Sustainable Investment Market Report 2012: Germany, Austria and Switzerland' is the sixth such report to be published by FNG.

The data will also be included in the Eurosif study on the European sustainable investment market, which is due to be published on 4 October.