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German investors warm to ESG, but barriers remain

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German institutional investors have voiced concerns about the transparency and adequacy of sustainable investment strategies on offer, according to a survey by Union Investment.

Sustainable investment has become more widespread among major investors in the country, the asset manager reported, with 64% of respondents using such strategies. Five years ago the figure was 48%.

Despite the growth in interest, investors still have unmet needs when it comes to sustainable investing, the survey suggested.

Of those investors that expressed some dissatisfaction with the strategies on offer, nearly two thirds (62%) cited lack of transparency as a reason. 

Strategies not meeting risk/return targets was another reason identified by that sub-set of investors (56%), as was the investment universe being too limited or not appropriate (51%).

Alexander Schindler, the board member responsible for institutional clients at Union Investment, said: “In future, providers will need to match investors’ requirements even more closely and offer more transparency.”

He said the survey showed that sustainability had become a hard investment criterion “for portfolio management purposes”.

“This change has promoted the professionalisation of the sustainable investment sector,” he added.

In Union’s survey, 64% of respondents cited financial aspects as relevant to sustainability, up from 42% five years ago.

However, only 37% of the investors’ assets are invested “sustainably”, according to the survey.

Sustainable investment in equities gained ground, rising from 14% five years ago to 30% in the latest survey, on a par with the share of sustainable investments accounted for by bonds.  

Bonds used to be the dominant asset class, accounting for 45% of sustainable investments in the 2013 survey.

According to Union, the survey also showed that changing regulatory requirements have become by far the most important factor behind institutional investors’ engagement with the topic of sustainability.

The asset manager referred to the new European Union pension fund directive – IORP II – saying that “company pension funds have to consider environmental, social, and governance criteria as well as climate risks in the investment funds they manage”.

A majority (67%) of German institutional investors indicated they knew “little or nothing” about the UN Sustainable Development Goals, and only 20% consider the goals when making decisions about sustainable investment, the survey found.

The share of investors considering climate change in their investment policies more than doubled since last year’s survey, growing from 21% to 43%.

Only 20% confirmed that they had information about the carbon footprint of their portfolios, however.

The survey, which is carried out annually, covered 204 institutional investors with nearly €5trn in assets under management, including investment managers, insurance companies, pension providers, banks, and charities.

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