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Corporate Governance – portrayed in the individual cultural and legal framework, from the standpoint of equity capital.

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VIPsight International

Article Index

Susanne Bergius


ESG goes mainstream

Sustainable investments are decoupling in German-speaking countries from general market developments and reaching record volumes, thanks to increases in values and heavy inflows of resources. Increasing numbers of institutional investors are incorporating environmental, social and governance (ESG) aspects into their share analysis and portfolio management.

The volume of sustainable public funds rose in 2009, according to industry service Ecoreporter, from 21 billion euros to almost 35 in Germany, Austria and Switzerland. The 61% increase is four and a half times that of the whole public-funds sector: this rise in the comparison period was 12.9%, says the Bundesverband Investment und Asset Management (BVI). In Germany alone, the sustainables proportion in all public funds rose to 4.6%. They are no longer a niche for hobbyists, but an investment segment to be taken seriously.

The offer has also developed differently from the industry trend. While all over Europe, and in Germany too, initially more investment funds disappeared than new ones were set up, as analysis firms Morningstar and Lipper found, in German-speaking countries, according to the Sustainable Business Institute, 31 new funds were set up and 29 added that were already licensed elsewhere or are newly pursuing sustainability criteria. Only thirteen funds were closed or merged.

Two thirds of the volume was invested in share funds. According to Ecoreporter, their value rose on average by 28%, and they brought in proportionately more before costs and fees than MSCI World. For those already in existence by the end of 2008, the volume rise of 40% was 10% above the value increase and was therefore being fed by inflows to that extent, reckons the SBI. In the US two thirds of sustainable public funds exceeded their benchmark in 2009, reports the Social Investment Forum (SIF). On a three-year and ten-year comparison too, they come out better.

This reflects the fact that environmentally aware, socially responsible business strategies and practices offer economic advantages and image points relevant on the exchange that can often be measured. For instance, they bring lower capital costs, as top management consultancy A.T. Kearney recently found. That is why institutional investors are increasingly taking substantively relevant ESG criteria into account in their investment policies. Munich Re, for instance, invests 80% of its share portfolio sustainably. Some investor groups are asking companies for standardized reports. “We see it as a duty to report on the decisive, quantifiable eco-social risks, opportunities and benefits,” says Ralf Frank, managing director of the Deutsche Vereinigung für Finanzanalyse and Asset Managment (DVFA). This association had central performance indicators (KPI) developed by experts, replacing them in late 2009 by industry-specific ones. The European financial professionals’ organization EFFAS has taken them up, and European network Eurosif also supports the list of criteria.

By now, worldwide over 680 investors, asset managers and financial-services providers with a total of 20 billion dollars have committed themselves to the UN principles of responsible investment (UN PRI). Almost two thirds of those already there a year ago have incorporated corresponding criteria in contracts with asset managers, whereas in 2007 the figure was only 38%. Additionally, 95% of capital owners and asset managers have, in thousands of cases of “shareholder engagement”, been involved in environment, corporate governance and labour-law questions, by casting their votes or dialoguing directly with managements.

This direction is now also being taken by German churches. The Landeskirche in Bavaria has sorted through its portfolio in accordance with ethical and eco-social criteria, separating out delicate cases, and started in 2009 to approach boards and supervisory boards, as its top financial director Jörg Blickle reports. The first successes are coming in. In one case, account was taken of the desire not to build atomic power stations in an earthquake area. Blickle is not naming names, but the conclusion that suggests itself is that this has to do with RWE.

The Landeskirchen in Hesse and Nassau and in Baden, and two Protestant pension funds, are having their proxy rights totalling over a billion Euros exercised(*) through British asset manager F&C. Using the “Responsible Engagement Overlay” (Reo) approach, they verify clients’ worldwide shareholdings for governance, environment, social and ethical aspects, and are able to combine their interests and influence. F&C voted almost twice as often in 2009 as in the previous year: on 58,000 resolutions in 5225 firms in 66 countries. F&C also keenly pursued dialogue. And successfully: every year over 200 firms worldwide implement the measures asked for.

Germany’s protestant church Evangelische Kirche Deutschlands (EKD) has taken up the theme. A working group on ethical and sustainable investment discusses and identifies criteria and guidelines that Protestant investors can follow. In a second group, mainly representatives of Landeskirchen, pension funds and church banks are discussing possibilities of setting up an institution for joint involvement. “We want to reach a decision this year,” says Ekkehard Thiesler, CEO of the church’s KD-Bank.

Also in 2009, an idea was arrived at jointly with the Catholic Bank für Kirche und Caritas (BKC): to set up multidenominational interest representation. BKC is according to its board chairman Richard Böger currently looking for cooperation partners to set up a partnership with an asset manager or found a cooperative organization. The churches administer pension money estimated to total 60 billion euros, and as Germany’s second-biggest employer can also influence small investors. This combined shareholder power is something neither firms nor investors could ignore.

Susanne Bergius*, editor-in-chief of “Handelsblatt Business Briefing zu Nachhaltigen Investments” and TV presenter on sustainable business and investment

*Contributions from guest authors express only their personal opinions, which need not be shared by VIPsight.