Regulatorik drives sustainable investments
The trend is obvious. The importance of sustainable investment strategies is growing. More and more investors want to consider environmental, social, and governance (ESG) factors in their investment decisions. And the fund providers are responding accordingly with new products that pay attention to environmental, social and governance factors.
According to a recent analysis by the rating agency Scope, German investors currently have almost 650 investment funds available that explicitly focus on sustainability aspects. Together, the funds currently manage almost 158 billion euros. 85 percent of the funds are actively managed. The passive approaches are divided into just under 50 funds with asset under management totaling nine billion euros.
While the majority of providers only have a few sustainability-related funds in their product ranges, at least 14 fund companies each have at least ten funds in the scope study. With BNP Paribas Asset Management, Union Investment, Candriam and Bank J. Safra Sarasin, four providers each have more than 20 sustainable funds on offer.
Still a lot of air upstairs
David A. Reusch, CEO of the Corporate Responsibility Interface Center (CRIC), an association that promotes ethics and sustainability in investment, expects the proportion of ethically-sustainable investments to increase significantly, albeit from a low level. "Right now we're talking about maybe three percent of the market, if anything. I hope that we will reach at least ten percent in the next five to ten years. There is a lot going on right now, but there is still a lot of room for improvement, "says Reusch.
Regulators in particular are hoping for a further boost, such as from the Shareholders Rights Directive, the EU Pension Fund Directive or the CSR Directive, which requires capital market-oriented companies, insurance companies and credit institutions of a certain size to submit a sustainability report on the past financial year have to submit.
New green rules
Additional momentum should come from the EU Commission's legislative package for promoting a sustainable financial system. The recent Commission proposal seeks to pave the way to promoting sustainable investment in the EU. It involves new rules for banks, asset managers and pension funds, stricter transparency requirements and new powers for regulators. For example, fund companies and other financial market participants should in the future be informed in the sales documents about how they handle ESG risks in their portfolios.
"Investors are looking for a sustainable investment, but if you ask why the market share is only three percent, then the vendor says the customer is not asking, and the client says it will not be offered to me," says CRIC CEO Reusch from his experiences. "Regulatory requirements would be a help here to resolve the dilemma - because you just have to do it."