Risk, not returns, drives German sustainable investments
GERMANY - The need to optimise risk management, rather than to boost investment returns, is the main reason German institutional investors consider sustainable investments, according to a study by Union Investments.
Almost three quarters (74%) of institutional investors surveyed cited this as the main driver, a year-on-year increase of 4 percentage points. It was particularly important for insurers, of whom 92% stated this as the main factor, compared to 87% of foundations, 84% of banks, 73% of pension funds and 30% of large companies.
"The recent turmoil in the capital markets has shown that risk assessments based entirely on short-term key performance indicators (KPIs) are not adequate," said Alexander Schindler, member of the board of managing directors of Union Asset Management. "The concept of sustainability is a valuable addition because the assessments are expanded to include qualitative factors."
Meanwhile, the proportion of survey respondents expecting a better rate of return from sustainable investments dropped from 50% in 2009 to 40% in 2010, which Union Investment attributed to a general desire for greater stability.
The survey of more than 240 large-scale German investors, with a combined investment volume of €920bn, was conducted by market research company Schleus Marktforschung in March and April of 2010. It showed that investors were much more likely to choose sustainable activities to enhance their image (74%), tap into greater public relations and marketing opportunities (72%), or as a response to high demand from customers or members (70%).
"Challenging markets tend to shift the focus away from returns to more stability and risk management," Christian Lienke, head of public relations at Union Asset Management , said.
The proportion of German institutional investors holding environmentally, socially or ethically orientated investment products also grew marginally: up from 64% last year to 68% in the first half of 2010. More significantly, the proportion of investors' overall portfolios made up of sustainable investments was 76% higher in the latest figures than it was in 2009.
Sustainable real estate funds appeared to be an excellent fit with investors' needs, the report concluded, with 62% of respondents rating them as particularly interesting.
Looking ahead to the next five years, a 55% majority of the investors forecast the market for sustainable investment products to grow. However, over that time period investors want to increase their proportion of sustainable investments by an average of just 51%, less than half of the 106% anticipated in 2009. And while 37% of survey respondents described their knowledge about sustainability as good or very good in 2009, the figure fell to 30% in 2010.
"The asset management industry needs to look at where it can step up its game", said Schindler. "A continued decline in the level of knowledge and quality of advice may lead to disappointment and a loss of confidence among investors."
Lienke added: "Sustainability is still a very vague concept for many investors. As long as investors cannot find a concrete use of sustainability in their investment philosophy there is the danger that sustainability will not be firmly enshrined in their portfolios."