Investment

Investment

Environmental policy

Environmental policy
Environmental
strategy

Environmental
strategy

Sustainability
Sustainability

Sustainable asset management by

Subline?
institutional investors
Findings report on the sustainability study conducted by
Union Investment in 2016

Contents
Foreword

How European investors use sustainable strategies

Barriers to the further spread of sustainability

in portfolio investment

Sustainability in the context of environmental policy

12

The design of the study

15

We work for your Investment

Sustainability Study 2016

Foreword

Dear reader,
Is sustainable investment a European issue? The answer to this question is categorically 'yes'. A clear majority of
the institutional investors from ten selected European countries interviewed for this study currently take sustainability criteria into account when making their investment decisions.
But that is where the similarities end. A look at the behaviour of investors in individual countries reveals some
major differences not only in terms of the proportions of those who apply sustainability criteria and those who
don't, but also with regard to asset classes and sustainable strategies used. The results also show a mixed picture
in terms of the level of knowledge investors have on the subject of sustainability and how they feel about the
strategies offered by asset managers. While around 50 per cent of Dutch investors consider the asset managers'
products and services to be helpful, this view is shared by only a quarter of professional investors in Switzerland.
There are also clear differences when it comes to the issue of climate protection. Although most institutional investors in Europe believe that the objective of reducing greenhouse gases will impact the capital markets, only
around a quarter are willing to draw the necessary conclusions and make climate-protection aspects a rm part
of their investment guidelines in the medium term.
And what about German investors? Sixty per cent factor sustainability criteria into their investment decisions
slightly below the European average. However, they appear to have a more half-hearted approach to sustainable
investments than many of their counterparts in other countries. This can be seen from the proportion of sustainable investment, which is just 33 per cent in Germany. Only Italy has a lower proportion. The picture is very different in the Scandinavian countries and in the Netherlands, where the proportion of sustainable investments is 61
and 53 per cent respectively of the total investment portfolio of those questioned. This may be because German
sustainability investors are, by European comparison, the least satised with the way in which sustainable investments are made in their own area of responsibility.
This study provides a wealth of data and ndings that can be used by both investors and the asset management
sector to nd out how their position on this issue compares to that taken in other European countries.
I hope the study makes stimulating reading.
Regards,

Alexander Schindler
Union Investment

How European investors use sustainable strategies

A comparison of investor attitudes across Europe
Sustainability has long been a mainstream issue among European institutional investors. On average, 63 per cent
of them take account of sustainability criteria in their investment decisions and sustainable investment strategies
have consequently become an integral part of institutional investment. However, the picture is far from uniform.
A look at the gures for the individual countries shows very marked differences. While in the UK and the Netherlands no more than half of institutional investors adopt a sustainable investment strategy, in Scandinavia (Denmark, Sweden, Finland and Norway), almost three quarters of professional investors apply sustainability criteria,
followed by Switzerland and Austria with 71 per cent and 70 per cent respectively. Germany is slightly below the
European average at 60 per cent, even taking into account the recent slight increase in the number of sustainable investors there.

63%

Total (803)

37%

Of which:
74%

Scandinavia (100)

26%

Switzerland (100)

71%

29%

Austria (100)

70%

30%

65%

Italy (100)

60%

Germany (203)

54%

Netherlands (100)

50%

UK (100)
Yes

35%
40%
46%
50%

No

German investors are hesitant

In the light of these gures it is no surprise that Scandinavian institutional investors are among those who
appear to be most convinced of the merits of sustainable strategies. The number of sustainable investments as
a proportion of the total volume of all assets is a solid 61 per cent, putting it well above the European average
of 39 per cent. The Scandinavians are also out in front when it comes to the question of the weighting they give
sustainability criteria compared to other investment criteria. Forty-ve per cent of institutional investors who
factor sustainability criteria into their investment decisions stated that they weight these criteria strongly or very
strongly. More surprising were the results from the Netherlands and the United Kingdom, i.e. the countries
where, by comparison with the rest of Europe, sustainability strategies were used least. The number of sustainable investments as a proportion of the total assets is unusually high here, as is the willingness to weight sustainability criteria strongly or very strongly in investment decisions. This may suggest that, once Dutch and British
investors have made the decision to invest sustainably, they take the matter extremely seriously. German investors, by contrast, are rather half-hearted. With only 33 per cent of total assets being invested sustainably, they are
bringing up the rear, together with Italian investors. The same is true for the application of sustainable criteria.

Sustainability Study 2016

Of total assets invested, proportion invested according to sustainability criteria

39%

Total (401)
Of which:

61%

Scandinavia (51)

53%

Netherlands (42)

43%

UK (35)

38%

Switzerland (52)
Austria (63)

35%

Germany (102)

33%

Italy (56)

22%

Calculation using average values for the asset class; code 0% disregarded

No question of opting out of sustainable investment for the majority

One potential reason for the half-hearted attitude of German investors could be that, in comparison to their
European colleagues, they are the least satised with the subject of sustainable investment within their own area
of responsibility. While 43 per cent of German respondents to the study said they were extremely satised, this is
low compared to the satisfaction rate of 50 per cent across Europe as a whole. The highest gures were reported
by the UK and the Netherlands, at 64 and 57 per cent respectively. Scandinavian investors were just below the
European average here, with 49 per cent. Overall, only 9 per cent of all respondents said they were dissatised
with sustainable investment. In view of these results, the prospect of opting out of sustainable investment seems
highly unlikely for a majority of these investors as things currently stand. This was conrmed by 74 per cent of the
study participants. If any investors are going to turn their back on sustainability, it is most likely to happen in
Switzerland and Austria where 39 and 35 per cent respectively of those questioned could imagine doing so.

Overall satisfaction with the way in which sustainable investments are made in their own area of responsibility

Total (506)

9%

UK (50)

8%

Netherlands (54)

7%

Italy (65)

9%

52%

2.4

Austria (70)

9%

51%

2.5

Scandinavia (74)

8%

49%

Switzerland (71)

10%

45%

Germany (122)

11%

43%

(rather) dissatised

50%

2.5

64%
57%

2.3
2.4

2.5
2.5
2.6

(extremely) satised

Traditional asset classes preferred

Equities, bonds and real estate continue to dominate sustainable investment in Europe. Most of the money managed under sustainable strategies was invested in equities (30 per cent), followed by bond strategies (20 per
cent) and real estate (19 per cent). More than two thirds of all sustainable investment strategies focus on these
three asset classes. However, the pattern varies widely from country to country. German investors, for example,
put the majority of their sustainable investments (36 per cent) into bonds. The proportion invested in equities is
far lower, at 23 per cent. In the United Kingdom the situation is reversed. Here, equities dominate (44 per cent),
while bonds play a much smaller role at 11 per cent. Real estate is very important for German investors in particular. Real estate accounts for 25 per cent of all asset classes for German sustainable investments, the highest
proportion in Europe. Infrastructure investments such as wind or solar systems, which tend to be most closely associated with sustainability in the public mind because of environmental policy objectives, are ranked relatively
low in the sustainable asset allocation among European investors, at 11 per cent. This is highest in Italy (18 per
cent) and lowest in Germany (4 per cent).

Distribution of volumes of all sustainable investments across the various asset classes
30%

Total (404)

20%

9%

19%

4% 11% 5%

Of which:
UK (n=39)

44%

Scandinavia (57)

43%

Switzerland (55)
23%

Netherlands (46)

23%

13%

6%

16%

36%

12%
8%

36%
17%
16%

5% 8%

23%

13% 3%

32%

Germany (99)

Missing label: Values <3%.

10% 5%

39%

Austria (53)

Italy (55)

11% 7% 11% 5% 12%

12%

17%

22%

10%

11%

13%

9%

10%

6%

25%
5%

8%

14%
27%

Equities

Alternative investments

Commodities

Money-market instruments

Real estate

Bonds

Other

Infrastructure

4%
10%
6%

Sustainability Study 2016

Rejection criteria method is popular

There are a number of methods available to investors when selecting sustainable investments, each of which pursues a different goal. The rejection criteria approach is the method preferred by European investors. Fifty-four per
cent said they used this straightforward method which involves excluding sectors, companies and even countries
from the investment universe if they do not meet certain social, environmental and governance criteria. Three
quarters of German institutional investors use this method. It is least used in the United Kingdom, the Netherlands and Scandinavia where investors tend to prefer positive screening. This is a method that aims to identify
companies which meet the sustainability criteria set out in the investment policy particularly well. Engagement
a process of long-term dialogue between investors and companies with the aim of persuading managers to take
account of social, ethical and environmental criteria in their business decisions is now rmly established among
European investors. One in three investors include this approach in their strategies. It is particularly popular in
Italy and Switzerland. Germany has some ground to make up in this regard. Only 27 per cent of sustainabilityoriented investors there said they use this approach in the pursuit of sustainable investment strategies.

Use of criteria/methods for the selection of sustainable investments

Rejection criteria

54%

Positive screening

47%

Best in class

41%

Negative screening

37%

Active ownership/engagement
Other

33%
4%

Respondents who factor sustainability criteria into their investment decisions. Multiple responses possible from a list of options provided.

Barriers to the further spread of sustainability in portfolio

investment
Sixty-three per cent of European institutional investors invest sustainably. This means the glass is considerably
more than half full, but what has to happen now to raise the level yet further? And what lies behind the investors' reluctance? One reason may be that the majority of institutional investors surveyed feel they don't know
enough about sustainable investment. On average across Europe, 44 per cent of them rated the level of knowledge within their own organisation as good or very good. But 56 per cent felt there was room for improvement.
Almost a fth said their knowledge of sustainability-related matters was poor to very poor. This gure is particularly high in Italy (26 per cent), which is consistent with the relatively low number of those who feel they are well
or very well informed. Dutch investors in particular are among those who are condent of their knowledge level.
The proportion of Dutch investors who said they were well or very well informed was the highest, at 53 per cent.

Level of knowledge about sustainable investments within own organisation

Total (803)

18%

26%

38%

14% 4%

2.6

Of which:
UK (100)

27%

Netherlands (100)

26%

Scandinavia (100)
Switzerland (100)
Italy (100)

14%
10%
Very good (1)

28%

24%

18%
15%

37%

27%

23%

Austria (100)
Germany (203)

19%

32%

29%

13%

6%

18%

37%

28%

44%
(4)

10%
19%

2.5
2.5
2.5

12% 6%

45%

23%

(3)

8%

34%

32%

(2)

9%

7%

15% 3%

2.6
2.5
2.8
2.7

Very poor (5)

Missing label: Values <3%.

Need for advice

The assumption that lack of knowledge could present an obstacle to the further spread of sustainable investment
strategies is borne out by responses to the question about the need for advice in the participants' own organisation. Thirty-two per cent of European investors assessed their need as very high. Even greater uncertainty was revealed when participants were asked about the need for advice in the market generally. A good 39 per cent of
investors identied a considerable need for further support on the issue of sustainability. Only 21 per cent of all
respondents expressed the contrary view. Austria and Germany are among the countries that saw the greatest
need for advice, along with the Netherlands and the United Kingdom, where the number of investors who said
more advice was needed was above average.

Sustainability Study 2016

Need for advice on sustainable investments in the market generally

Total (803)
Austria (100)

18%
15%

Germany (203)
Netherlands (100)
UK (100)

23%
24%

Italy (100)

30%

Switzerland (100)

29%

Scandinavia (100)

39%

21%

43%

2.7

42%

2.7

41%

2.8

41%

2.8

39%
35%

(very) low

2.9
3.0

31%

18%

2.8

2.8

(very) high

Top2/Low2 and mean values on a scale of 1 (very high) to 5 (very low).

Asset managers must rise to the challenge

One stumbling block on the road to greater sustainability could be overcome by asset managers themselves. Their
strategies are currently seen as very helpful by only a third of institutional investors across Europe. Viewed at individual country level, however, the strength of the positive response varies widely, ranging from 50 per cent in
Italy to 39 per cent in Austria and 25 per cent in Switzerland. Investors in Germany are particularly critical of the
products and services available in this sector. Only 30 per cent of the investors questioned there rated the strategies for sustainable investments on offer as very helpful. In contrast, 22 per cent said they were not helpful the
highest negative score after Switzerland.

Assessment of the strategies on offer in the area of sustainable investment

Total (741)

19%

Italy (93)

17%

50%

12%

UK (86)
Scandinavia (86)

17%

Austria (94)

16%

Netherlands (87)

22%

Germany (199)

22%

Switzerland (96)

37%

27%
not helpful

2.6

44%

2.6

43%

2.7

39%
37%
30%
25%

2.8

2.7
2.8
2.9
3.1

(very) helpful

Top2/Low2 and mean values on a scale of 1 (very high) to 5 (very low).

Across Europe, the products and strategies relating to sustainability are often felt to lack transparency. This was
conrmed by 42 per cent of the investors questioned. Thirty-seven per cent complained that the solutions offered
by asset managers failed to properly reect the desired risk/return proles. Another 37 per cent feel that sustainable strategies restrict the investment universe. In Germany, the number of investors who agreed with these
statements was signicantly above the average. Fifty-one per cent of German institutional investors saw problems with the risk/return prole of sustainable investments. But there were also concerns regarding transparency, with 50 per cent rating this as inadequate.

Reasons why products and strategies offered in the area of sustainable investment are unhelpful
Lack of transparency

42%

Do not offer the necessary return/risk prole

37%

Investment universe is too restricted, or wrong

37%

Costs are too high

Deciencies in reporting

27%
20%

Respondents who rate the products and strategies offered at 3 or lower on a scale of 1 (very helpful) to 5 (not helpful).
Multiple responses possible from a list of options provided

Concern about low returns

Beyond the asset management sector, other obstacles can be identied that are preventing sustainable strategies
from becoming more prevalent. Asked about the reasons for deciding not to factor sustainability aspects into
their investment decisions, almost half (47 per cent) of those who do not invest in this way cited lack of demand
from customers or stakeholders. This seems to be a key factor in Italy, Germany and Austria, in particular. In some
countries signicantly more than half of the investors questioned cited this as a very important reason.
Across Europe, the second most important argument for investors' reluctance to go further down the sustainability route (cited by 44 per cent of respondents) was concern about lower expected returns. This scepticism is
particularly pronounced in Italy, Switzerland, Austria and Germany. In view of the numerous studies showing that
sustainable investments do not generate lower returns, and can in some cases even generate higher returns, the
concern of these investors is surprising. Nevertheless, it appears to still be hindering the further spread of sustainable investment, at least in some quarters. Better information and education is needed here, particularly since
the majority of those who use sustainable strategies do not seem to have had any bad experiences in terms of
returns. On the contrary: for 54 per cent of them, higher expected returns are a very important reason for their
decision to factor sustainable investment criteria into their decision.

10

Sustainability Study 2016

Just as surprising as the returns argument is the statement by 42 per cent of those who took part in the study
that sustainable investment is simply not an important consideration for their rm. Responses to this effect from
non-users of these strategies came from Italy, Austria and the Netherlands. At a time when international climate
policy is increasingly forcing investors to be accountable for their decisions, this attitude seems questionable.
Going forward however, it is expected that politicians will exert more pressure to ensure that sustainability aspects are taken into account in investments. This opinion is shared by many investors in Europe. Thirty-seven per
cent expect the most important driver for stronger engagement with the issue of sustainability to come from
tighter regulatory requirements in future.

Reasons for not taking sustainability criteria into account in investment decisions

23%

No demand from customers/stakeholders

47%

28%

Lower expected returns

44%

2.7
2.9

Sustainability criteria are not a consideration for our

organisation

25%

42%

2.8

No demand from decision-making bodies

25%

41%

2.8
2.9

Not specied in investment guidelines

29%

40%

More administration

28%

38%

No impact on image
More expensive
Legal requirements/duciary duties
Makes risk management more difcult
No opportunities for marketing/PR

3.0

35%

32%

3.1

33%

32%

3.1

32%

3.1

37%
33%
42%
not helpful

26%

3.2

26%

3.3

(very) helpful

Respondents who consider sustainability criteria when making investment decisions. Top2/Low2 and mean values on a scale of 1 (very high) to 5 (very low).

11

Sustainability in the context of environmental policy

The climate change conference in Paris gave further impetus to international efforts to limit the CO2 emissions
that are responsible for global warming. Action is also being taken at European level. France, for example, has
enacted a law that requires investors to provide information on the CO2 relevance of their portfolios. Within the
EU, companies with more than 500 employees will be required to report on sustainability issues. And in Germany,
the federal government recently published an instruction manual for environmentally friendly investment. On the
back of all these initiatives it is to be expected that investors will, in future, have to consider the aspect of sustainability more fully when making their investment decisions.
This is a view currently shared by the majority of institutional investors in Europe. Sixty-seven per cent of the
respondents in this study believe that the objective of reducing greenhouse gases will impact the capital markets,
although it is a belief that is held more strongly in some countries than others. While only 47 per cent of respondents in Switzerland anticipate this having implications for investment behaviour, 78 per cent of investors in the
Netherlands believe it will. In Germany the gure is 58 per cent. It is astonishing that the proportion of European
investors who do not see any impact on the capital markets is still very high, at one third. This must give cause
for concern: there can be no doubt that stricter climate protection requirements will lead to challenges in risk
management for investors that must not be underestimated.

Impact of the policy objective of reducing greenhouse gases on the capital markets
67%

Total (802)

33%

Of which:
81%

Italy (100)
Netherlands (100)

78%

Scandinavia (100)

78%
75%
64%

UK (100)
Austria (100)

58%

Germany (202)
Switzerland (100)

47%
Yes

19%
22%
22%
25%
36%
42%
53%

No

The respondents believe that the oil and gas industry would be particularly hard hit. Seventy-two per cent expect
negative effects for this sector. This view was most strongly held in the Netherlands (78 per cent) while the United Kingdom was least convinced (65 per cent) Institutional investors also expect turbulent times for power utilities. Fifty-three per cent of all respondents expect negative consequences for the companies concerned. In Germany the gure was even higher, at 81 per cent. The third sector felt to be most at risk is the automotive industry. Of all those surveyed, 37 per cent anticipate problems for manufacturers in this sector. Investors in Switzerland and Italy were particularly concerned about this, with 50 per cent and 52 per cent respectively predicting
damaging effects for the motor manufacturing industry.

12

Sustainability Study 2016

Sectors that will be hardest hit by the resolutions adopted at the climate summit
Total
(801)

GER
(201)

AUT
(100)

CH
(100)

ITA
(100)

NLD
(100)

Scand.
(100)

UK
(100)

Oil and gas

72%

70%

68%

78%

77%

78%

72%

65%

Power utilities

53%

81%

47%

60%

51%

37%

33%

33%

Vehicle manufacturers

37%

46%

38%

50%

52%

27%

20%

20%

Aircraft manufacturers

27%

36%

27%

41%

24%

20%

16%

18%

Other

9%

14%

11%

10%

9%

4%

3%

5%

Germany has some ground to make up in respect of climate protection

The question as to how many investors have already enshrined climate change criteria in their investment guidelines reveals how this issue is still given insufcient consideration by investors. A good third of those surveyed
answered this question in the afrmative. Germany still has a considerable amount of ground to make up in this
respect. Only 21 per cent of respondents stated that they currently address climate protection aspects, putting
German investors at the bottom of the rankings by some distance. Investors in the Netherlands and Scandinavia
appear to be taking a more proactive approach. Climate protection aspects there are enshrined in an above-average proportion of investment guidelines.
Investors whose policies already address climate protection aspects tend to invest more heavily in renewable
energies. Across Europe as a whole, 51 per cent of those who include climate protection strategies go down this
route. It is particularly favoured as an investment option in Austria and Germany where it is used by 61 and 60
per cent of investors respectively. It is least used in the United Kingdom (29 per cent). The strategy of addressing
climate protection aspects by excluding sectors that are harmful to the environment is also popular. Forty-three
per cent of investors adopt this approach. Here too, Austria and Germany lead the way. In Austria, 74 per cent
of investors exclude environment-damaging sectors and in Germany the gure is 62 per cent.

Ways to incorporate climate-protection aspects

Total
(n = 272)

GER
(n = 42)

AUT
(n = 38)

CH
(n = 38)

ITA
(n = 43)

NLD
(n = 40)

Scand.
(n = 40)

GB
(n = 31)

Increased investments
in renewable energies

51%

60%

61%

58%

56%

58%

30%

29%

Exclusion of specific sectors

43%

62%

74%

42%

40%

18%

43%

19%

Best-in-class approach

39%

52%

42%

34%

35%

38%

33%

39%

Effects on companies
invested in

26%

29%

37%

29%

30%

23%

20%

13%

Other

12%

12%

8%

11%

7%

10%

18%

19%

13

Climate protection not given priority

Sixty-six per cent of European investors do not address climate protection aspects in their investment guidelines.
The main reason for this is the lack of demand, both internally and externally. Forty-seven per cent of the respondents mentioned a lack of demand internally and 41 per cent mention lack of external demand. In Germany in
particular, lack of internal impetus seems to be an inhibitor. This was conrmed by 64 per cent of the investors
questioned. And, until this situation changes, the implementation of investment strategies that are relevant to
climate protection is unlikely to gain momentum in Europe. The study seems to conrm this assessment. Only
28 per cent of those who do not currently factor climate protection into their investment decisions are planning
to do so in the next ve years. Fifty-ve per cent see no reason to do so. This attitude is particularly prevalent in
the United Kingdom, Germany and Switzerland.

Extension of the investment guidelines to include climate-protection aspects in the next ve years
28%

Total (530)

55%

17%

Of which:
44%

Austria (62)

44%

39%

Italy (57)

40%

12%
21%

Scandinavia (60)

30%

50%

Netherlands (60)

28%
24%

55%

17%

62%

14%
21%

Germany (160)
UK (69)

58%

21%

Switzerland (62)

65%

16%
yes

No

20%

19%

dont know/no idea

New demands placed on asset managers

Investors are also looking to asset managers for guidance on climate protection issues. On average across
Europe, 42 per cent of institutional investors expect their asset managers to provide advice on this matter. This
desire is particularly strong in Germany and Austria, at 59 and 56 per cent respectively. British, Dutch and Scandinavian investors, in contrast, expect considerably less from asset managers in this respect. In addition to advice
on climate protection and the investment process, European investors also demand reports on these areas
(31 per cent) and specic solutions for reducing the carbon footprint (28 per cent).

14

Sustainability Study 2016

The design of the study

The data for the study was collected over a period of three months from February to April 2016, mostly by
telephone.
803 institutional investors from the following western European countries were questioned:

Germany
Austria
Switzerland
Italy
Netherlands
United Kingdom
Scandinavia (Denmark, Sweden, Finland, Norway)

Together, the participants manage total assets of 7.8 trillion.

The sample was made up as follows: Regions/countries

United Kingdom 12%
Germany 25%
Scandinavia 12%

Netherlands 12%
Austria 13%

Italy 12%

Switzerland 13%

15

How to contact us

Disclaimer

Union Investment Institutional GmbH

Weissfrauenstrasse 7
60311 Frankfurt am Main, Germany

The content of this marketing material does not constitute a recommendation to take a specic course of
action; it is not a substitute for personal investment
advice or for expert personal tax advice. This document
is intended for professional clients only. Although Union
Investment Institutional GmbH has compiled and produced this document with due care and attention, Union
Investment assumes no liability for the information
therein being up to date, accurate or complete.

Tel: +49 (0)69 2567 7652

Fax: +49 (0)69 2567 1616
www.union-investment.com
Dated: 05/2016
005286 05.16

Last revision date for all information: 31 May, 2016

unless otherwise stated.