New studies: Rapid rise in amount of money invested sustainably

The latest studies by Eurosif (European Sustainable Investment Forum) and Germany’s FNG (Forum Nachhaltige Geldanlagen) confirm that the sustainable investment sector is growing. A close look at the market shows that it is also becoming more diverse. Private and institutional investors looking to invest sustainably can choose from a wide range of products within several different investment categories. Owing to cultural and regulatory differences, significant variations are becoming evident between individual European markets.

With the market changing so dynamically, Eurosif decided it needed to update its surveying method before conducting the latest study. In its last survey a distinction was drawn between broadly defined approaches to sustainability and more narrowly defined approaches; but now the individual strategies[1] are each recorded separately, though in practice asset managers often apply several strategies at once. There are equity funds, for example, that invest in the most sustainable companies in each sector, but also apply various ethical exclusion criteria and make use of voting rights to influence the companies concerned.

This could lead to double counting in the statistics, so another change from previous years is that in this study Eurosif has not published an overall sum for the volume of sustainable investments.

With a volume of EUR 3.8 trillion, the most popular strategy in size terms is “exclusion” – which is where investments are excluded from consideration by applying ethical criteria. This method is also the oldest strategy in the field of sustainable investing, and is relatively straightforward for portfolio managers to implement. The most common criteria used are things like “no armaments” or “no tobacco”.

“Norms-based screening” recorded the greatest growth of all the strategies – 137 percent – in 2011. Eurosif discovered that rules to exclude companies involved in specific controversial types of weaponry had been formulated by asset managers for about 50% of all assets under management in Europe. In Germany, large investment institutions like Allianz Global Investors, Deka and DWS blocked the shares of companies manufacturing cluster bombs and anti-personnel land mines from their retail funds. Such measures have been accelerated by initiatives like the Principles for Responsible Investing. With more and more investment houses and institutionals consciously trying to live up to their responsibilities as investors, the application of minimum standards is now widely established.

The broad-based integration of environmental, social and corporate governance (ESG) criteria into asset management has become increasingly important, with more than EUR 3 trillion of professionally managed money now managed according to ESG principles. The financial consequences are the most important thing here, whereas exclusion investing is motivated more by ethical considerations. Exercising voting rights is also a strategy adopted by large portfolios these days. Managers in charge of almost EUR 2 trillion actively exercise their rights as shareholders or enter into dialog with companies on controversial issues relating to the environment, society or corporate governance. One of the other advantages of these strategies is that they can be used as an “overlay” on existing conventional portfolios. This is not case the with best-in-class or sustainability theme strategies, where investments have to be in companies that are sustainability leaders in their industries, or that predominantly make environmentally friendly products. These specialist segments have also grown strongly (by 40%), but are still smaller in terms of absolute volume.

For the first time, Eurosif also looked at the EUR 8.75 billion impact investing segment this year. Investors are clearly getting more and more interested in making a difference, usually by investing directly in projects with a social or environmental purpose. 

Market study for Germany, Austria and Switzerland records more than EUR 100 billion

Unlike Eurosif’s pan-European study, the FNG’s market report on sustainable investment in the German-speaking region includes aggregate figures. At the end of 2011, EUR 103.5 billion was invested sustainably in Germany, Austria and Switzerland, which is almost ten percent higher than in 2009. As well as the EUR 60.6 billion invested in retail funds and portfolios, special banks with a sustainability focus play an important role through their own and their customers’ investments. Another EUR 1055 billion is subject to norms-based screening, where the exclusion of cluster bombs plays a major role.

Diverging trends are also evident between individual countries. In Austria and Switzerland the proportion of bonds in portfolios has increased significantly, whereas in Germany, it is alternative investments, like direct investment and sustainable real estate, that have seen a boom. In Germany the closed fund segment has increasingly prompted strong investor interest in the renewables sector as well as in green real estate. On the investor side, growing interest among institutionals is particularly evident in Germany. Asset managers thus expect to see strong market growth continuing in coming years, with demand from institutional investors acting as an important driver.

What does this market study mean for investors and banks?

There are more and more ways for investors to apply their personal values when investing their money. The growing number of providers, products in different asset classes, and the wide range of ethically focused and financially attractive approaches offer great freedom of choice. All this variety can, however, cause confusion, as it becomes increasingly difficult to find an all-encompassing definition of sustainable investment. Market players need to create transparency. Good financial intermediaries can help their clients find appropriate products. Meanwhile, independent quality labels are being developed to help investors find their way around the market quickly and to ensure credibility.

 


[1] The following strategies are recorded: Norms-based screening, best-in-class, sustainability-themed funds, exclusions, ESG integration, engagement/exercise of votes, impact investing.

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