RI Interview: imug, the German ESG advisory firm you might not know

Ask a responsible investment professional outside of Germany if the term “imug” is familiar, and chances are you’ll get a blank stare or maybe even a witty remark: “Apple’s latest invention?”

But it actually refers to one of Germany’s leading ESG (environmental, social and governance) research firms.

Imug, which stands for “Institut für Markt-Umwelt-Gesellschaft,” was founded in 1992 by two academics from the University of Hanover to assess the environmental and social impact of German companies and their products.

One of them, Ingo Schoenheit, is the company’s chief executive. Three years after its launch, imug began advising German companies and banks on corporate social responsibility (CSR) issues. By 2000, it decided to leverage its know-how and the CSR knowledge it had accumulated and create an ESG research firm for German investors.

To boost the viability of the project, it forged an alliance with EIRIS, the UK pioneer of ESG research and rankings. Under the arrangement, imug shares its research on listed companies from the German-speaking lands in exchange for access to EIRIS’ network.

Imug is effectively EIRIS’ representative in Germany. A cross-shareholding is not part of the arrangement, and Schoenheit says there are no plans to for this to change.

Since 2000, imug has positioned itself among faith-based investors in Germany. Of the 30 institutional clients it advises, six are banks for the Catholic and Protestant communities and another two are the bishoprics for Cologne and Munich. Imug also has three of Germany’s best-known ethical and environmental banks as clients, and all 11 institutions rank as serious SRI investors. This means that they use imug’s research to filter out equities or bonds which do not meet exacting ESG standards.Engaging with companies to get them to better adhere to the standards has been less of a priority, though the CEO of Catholic church bank BKC recently called on his peers to form a coalition to do precisely that. As far as asset managers go, imug has five clients in this space, including two big German houses (Deka, Union Investment) and Invesco of the US. All told, it has provided the ESG research for 24 sustainable funds offered by the three asset managers and several of its church/ethical bank clients.

Due both to a common beginning (around the year 2000) and a common focus (SRI investors), imug considers oekom research, the Munich-based ESG research firm, as its main competitor. International ESG firms such as Sustainalytics and MSCI are also in Germany, but Silke Stremlau, Head of Sustainable Investments at imug, says she almost never sees them in her segment. “Whenever we pitch to an investor, we are almost always competing with oekom. This is probably because the investor wants a more involved SRI approach. Investors wanting a less green approach like best-in-class usually go with MSCI,” said Stremlau, who spoke to Responsible Investor during a joint interview with CEO Schoenheit in Hanover.

While imug has certainly become a force in Germany’s sustainable investment industry, oekom is larger on a pure company-to-company basis.

Oekom recently announced that it had 100 institutional clients (against 30 for imug); it has 48 ESG specialists (against imug’s nine). Yet according to its own comparison with oekom, imug includes the EIRIS network that it is a part of. Seen in that light, imug is more comparable with oekom, with €600bn in assets under advice compared with €520bn for oekom and bigger in terms of total offices and staff.

Oekom has offices in Munich and Paris, while imug/EIRIS is present in London, Hanover, Boston and Paris and employs ESG specialists in Spain, Israel, Mexico, Korea, Australia and South Africa.

According to Stremlau, the point of this comparison is to show that through EIRIS’ global network, investors have access to more detailed research on companies. “The main difference is that oekom determines which companies get ‘prime status’ – i.e. that are investable. That whittles the choice for the investor down to 1,500 companies. We, on the other hand, believe the investor should make that determination, and that is why, through the EIRIS network, we can provide intelligence on up to 3,200 companies,” she says. Oekom says, however, that it has since expanded its coverage to more than 3400 companies, putting it very much on par with the imug/EIRIS network.

Turning to Germany’s sustainable investment market, Stremlau and Schoenheit stress that they are encouraged by its steady growth. FNG, the sustainable investment forum for Germany, reported recently that the market for sustainable funds posted double-digit growth again in 2013, rising 19% to €31bn. But the volume represented just 1.5% of the total market, and experts like the imug executives agree that sustainable investing will not become part of the mainstream as long as most German insurers and pension funds avoid it. Indeed, 60% of the sustainable fund volume in Germany is held not by such big institutions but smaller ones like church investors or foundations.

With respect to their attitudes toward sustainable investing, the imug executives note that many of the schemes continue to believe that it costs them money.Says Schoenheit: “Whenever I visit these institutions to discuss the subject, only one person out of 10 finds it interesting. Another two are listening to be polite and the others have walked out either because they think it’s dangerous to limit the universe or because it’s over their heads.”

Another factor, says Schoenheit, is that there is no pressure from the ground up, as beneficiaries don’t take an interest in what asset managers, pension funds or insurers are doing with their money. “Even though Germans want to live in a sustainable society, that attitude doesn’t apply to money. Germans seem to see it in a detached way and don’t understand that they could do more good with their investments,” he adds.

That said, Stremlau and Schoenheit do believe that given Germans’ wish to live in a sustainable society – the government aims to have renewables account for half of the energy mix by 2030 – responsible investing will gain more ground in coming years. This is especially true as the effects of climate change become better appreciated or if there are more terrible events like last year’s garment factory disaster in Bangladesh.

Such events will prompt Germans to ask what their pension fund or insurer is actually doing with their money. “There also have to be success stories too, such as sustainable funds performing better than conventional ones during crises,” adds Schoenheit.