German investors are in support of an increase in the carbon price per tonne to €62, according to the 2020 sustainable asset management survey of institutional investors conducted by Union Investment.
The German government plans to price CO2 emissions at €25 per tonne.
According to the study, based on a survey of 166 institutional investors in Germany with combined assets worth €6.8trn, 72% said €25 is inadequate, and 92% thought capital markets had not yet priced in climate risks to an appropriate degree.
The study found that sustainable investment is on the rise in Germany, with 80% of institutional investors that now weigh sustainability criteria during the investment process – an 8% increase compared to the previous year and the highest value since the start of Union Investment’s annual investor survey in 2009.
Credit institutions (24%), asset management firms (21%), insurance companies (18%), foundations and churches (16%), pension funds (12%) and large companies (9%) are listed among the investors surveyed.
“We are now also registering strongly growing demand from private investors for sustainable investments, that were for a long time primarily a topic for institutional investors in Germany, ” Henrik Pontzen, head of ESG at Union Investment, told IPE.
In total, institutional investors deployed more than half (56%) of their assets based on environmental, social, ethical and governance criteria. Church organisations and charitable foundations stood out for following ESG policies (75%), but insurance companies also recorded high scores, with 66%.
The research showed that investors tended to opt mainly for exclusion criteria as a method for selecting sustainable investments (92%), but three quarters (74%) of the respondents opposed excluding companies that have plans to transition into a sustainable business even though they had not completed the process yet.
Negative screening processes were picked by 72% of investors, followed by positive screening (58%), while the best-in-class approach was selected by 55% of respondents.
Although 57% of participants considered engaging with investee companies effective, only one third (34%) took active part in a dialogue with the firms.
Institutional investors said they expect either a strong or a very strong market growth for sustainable investments (83%) in the next 12 months, compared to 69% of those surveyed the previous year.
They believed the energy sector (95%) and the transport and mobility sectors (93%) held particularly great potential for sustainable investments, the research showed.
The regulatory framework was a driver to continue intensifying involvement in sustainable investing for 70% of the respondents, it disclosed.
Union Investment welcomed the goal set by the government to make Germany a leader in sustainable finance.
“A look at the relative share of sustainable investments in Germany shows that we have got an enormous catch-up potential in a European comparison,” Pontzen said.
For the majority of the respondents (70%), particularly asset management firms, insurance and large companies, sustainable investments could have an impact on the global climate.
So far, large investors that included sustainability criteria in their decision-making process were satisfied or extremely satisfied with sustainable investments.
According to the survey, investment returns on sustainable assets showed similar or even better performance than that of conventional portfolios for almost 71% of investors.