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German SRI laggards play catch-up

A recent survey by Union Investment found that German professional investors have invested only 37% of their assets in sustainable investments. That compares to 52.6% on average in Europe, according to figures from the Global Sustainable Investment Alliance (GSIA).

The Germans also lag in using any form of sustainability screening: according to a study by BNP Paribas Securities Service published earlier this month, eight in 10 institutional investors in Europe use some form of sustainability screening. In Germany, it’s only 64%, although that has come up from just 48% five years ago. And ESG adoption has now even passed a point of no return, it seems: 77% of those who use sustainable strategies would no longer even consider to give up on it.

In a strong sign the Germans have become serious about sustainable investing, financial aspects of sustainable investment have moved front and centre of German investors’ considerations: for two thirds of those who use ESG-screened investments, return prospects are the primary consideration for inclusion.

“Sustainability has evolved from a soft investment criterion into a hard investment criterion for portfolio management purposes,” comments Alexander Schindler, a board member of Union Investment. “This change has promoted the professionalisation of the sustainable investment sector.”

Germany’s investors have also been making a shift from bonds to equities in their sustainable portfolios. In 2013, bonds still accounted for 45% of all sustainable investments, while the allocation to equities was less than half that amount. Now, allocations to both buckets are on par, each accounting for 30%.

Interestingly, investors in the rest of Europe have done the opposite, increasing their allocation to green bonds while reducing exposure to sustainable equity. According to GSIA, the share of sustainable equity investments as a share of the total was reduced from 50% in 2014 to 30% in 2016 in Europe, while bond investments increased from 40% to 64%.

Knowledge gaps

While interest in sustainable investing is on the rise in Germany, investors in the country need to train themselves up a bit on the subject.

Two thirds of institutional investors know little or nothing about the United Nations’ Sustainable Development Goals and only one in five considers these goals when making decisions about sustainable investment. Likewise, only 20 per cent of institutional investors confirmed having information about the climate footprint of their portfolio.  

Part of the Bonhill Group.