Sustainable Investing Experiences Burgeoning Institutional Interest in Germany, Research Shows

(August 3, 2011) — A recent survey of 218 large-scale investors managing about €1 trillion has found that institutional interest in sustainable investing is on the rise in Germany.

The research — by Union Investments — discovered that two-thirds of institutional investors favor using shareholder engagement on sustainability and corporate governance when investing, and most follow this with active engagement.

According to the survey, German institutional investors apply sustainable factors to 50% of their assets on average. However, the percentage rises to 73% for foundations. Pension funds, meanwhile, hold below-average proportions of their assets – between 32% and 34% – in sustainability programs, while churches and endowments hold 73%.

German investors and European investors more broadly have generally been more receptive to social and environmental investing compared to their American counterparts. Without a doubt, institutional investors around the world have been more aggressive in keeping ESG factors  in mind when making investment decisions, Mercer Consulting’s Craig Metrick, an acknowledged expert in the field, told aiCIO in April following a report that asserted that more stringent carbon emission rules are hampering corporate profits. But, while there has been a greater recognition globally to reduce emissions, the US is still lagging behind the UK, largely due to the UK’s more supportive regulatory environment. According to Metrick, one of the reasons that US institutional investors have not been as aggressive in investing in renewable energy compared to their European counterparts is because of a lack of legislation. “In Europe, there are certain regimes for reducing carbon emissions, fostering a better legislative environment, whereas the debate on climate change and renewable energy has been very politicized in the US,” he says.

The research by Union Investments also follows additional findings from this week by RCM, a company of Allianz Global Investors, which revealed that introducing environmental, social, and governance (ESG) criteria into an investor’s selection process does not negatively impact performance, and instead, may actually enhance it.

“The perception that corporate efforts to become more sustainable reduce the value of companies and of investors’ portfolios is entrenched, but is based on largely unfounded assumptions and only thin academic evidence,” the research paper claimed. “It is imperative to challenge this perception empirically because it is holding back the evolution of the nascent sustainability sector and of the wider corporate sector.”

The research — which tested the impact of ESG issues on portfolio performance over the period 2006 to 2010 — found investors could have added 1.6% per year over five years to their investment returns by allocating to portfolios that invest in companies with above-average ESG ratings.