Union Investment, the German asset manager that has emerged as a one of the country’s leading sustainable investors, is looking to double the assets invested in its sustainable funds and greatly expand its proxy business for institutional clients by the end of this decade.
Owned by German cooperative banks, which got their start in the 19th century as bankers for farmers and artisans, Union Investment signed the Principles for Investment (PRI) in August 2010. This was followed by the rollout of a high-profile sustainable investment strategy, including new funds, proxy services for institutional clients like engagement and voting as well as the first renewable energy fund from a Germany-based asset manager.
Five years on, Union’s sustainable funds have taken in €10bn in assets – the most of any asset manager doing business in Germany. Union also provides proxy services like engagement and share voting to 41 institutional clients, most of which are big church investors. As executives at Germany’s largest listed firms (Dax 30) can attest, Union has become one of Germany’s most engaged investors. It regularly speaks out on pressing ESG – though chiefly G – issues at the annual meetings of Dax 30 firms.
While the success of Union’s sustainable strategy is not down to one person, the leadership shown by Alexander Schindler, Board Executive responsible for the institutional business, has certainly paved the way. And Union’s accomplishments in this regard are just the start. Schindler says that by 2020, Union aims to double (to €20bn) the assets invested in its sustainable funds. In the short term, he also believes it’s possible to act as the proxy agent for up to 70 institutional clients, including pension schemes along with its current church clients.
According to Schindler, the targets should be achieved by winning more sustainable mandates in both Germany – and, increasingly, around Europe. “Union Investment used to be a no-name outside of Germany. But I think our recent mandate in the UK (with the Environment Agency Pension Fund – EAPF) shows that this is changing. We are now looking to further expand in that market as well as in places like Scandinavia, the Netherlands, Switzerland and Italy,” he told Responsible Investor in a recent interview. In Austria, another burgeoning market for sustainable investing, Union recently acquired two asset managers and is even better positioned to benefit from the growing demand for the strategy.The EAPF mandate, worth €126m and for global equities, has helped Union’s sustainability credentials outside Germany, given the high priority the fund puts on the issue and the other leading RI managers who have mandates with it. In picking Union, the EAPF praised its ability to use sustainability to add value. Says Schindler: “I have to admit that we were sceptical that we would beat out international managers to win the mandate. But it appears that our expertise was what the EAPF was looking for.”
Back in Germany, whose sustainable investment market has lagged behind others like the UK and Scandinavia, Schindler says that for the first time in years, he’s upbeat about its prospects. That’s partly because the myth that sustainable investing sacrifices return has been debunked.
“Ten, or even five years ago, we at Union had a hard time convincing institutional investors that sustainability does not cost you but actually can improve your risk profile,” he says. “Today, however, you don’t hear this from them at all. On the contrary, they are very much interested with trouble spots in the portfolio that a sustainable approach can help identify and rectify.” Then there are the recent regulatory moves from the EU that Schindler says will further boost sustainable investing. Indeed: Last month, the European Parliament approved the EU’s latest Shareholder Rights Directive (SRD), which would have institutional investors develop policies on engagement with portfolio companies, voting of shares and ESG monitoring of the companies.
In the interview, Schindler pointed to the new ‘quality label’ for sustainable funds from the FNG (German SIF) as a further driver of demand. “German investors need this kind of orientation, for they can be sure of what they’re buying and also compare between funds. I therefore expect quite a few fund companies, including us, to apply for the label,” he says.
FNG plans to unveil the label, which it developed jointly with French SRI research group Novethic, in November. Funds qualifying for the label must exclude controversial weapons like cluster bombs, nuclear power as well as companies that violate human and labour rights.
Regarding Union’s pioneering renewable fund, Schindler says the product has swelled to €300m since its launch in 2012, and that roughly two-thirds of the volume has been invested. That money has gone to seven wind and solar projects in Germany, Ireland, France and the UK, and Union hopes to have the fund fully invested soon. Schindler, however, left open the possibility of launching a second renewable fund for institutional clients, saying that it has got a lot harder to find projects that offer attractive returns. One main reason for this, he says, is the surge in demand for renewable projects caused by investors looking for alternatives in this time of persistently low bond yields.