"IFZ Sustainable Investments Study 2018" on sustainable funds
The "IFZ Sustainable Investments Study 2018" by the Lucerne University of Applied Sciences and Arts shows that sustainable investment funds are growing three times faster than the overall market in percentage terms. The assets of sustainable mutual funds in Swiss distribution increased by 44 percent over the past year to CHF 157 billion. Swiss investors now have access to 423 funds that take into account social and environmental compatibility as well as financial criteria.
Manfred Stüttgen, head of the "IFZ Sustainable Investments Study 2018," observes a trend: "Theme funds usually take up contemporary debates, currently environmental issues such as climate change or social challenges such as demographic change," says Stüttgen. Theme funds with a focus on the environment and climate are growing disproportionately.
They are benefiting from the demand for green bonds. More than CHF 1 billion in new money has flowed into these funds. The range of funds with a social theme, such as demography, generational equity or gender diversity, is also broadening. These funds are still relatively young compared to other thematic funds (e.g. water).
Sustainable investments are seen as a successful innovation and are reaching an increasingly broad investor base: The number of sustainable mutual funds increases year-on-year from 336 to 423 funds (+26 percent). The assets under management in these funds grow from 109 to 157 billion Swiss francs (+44 percent). This is shown in the study by the Institute of Financial Services Zug IFZ of the Lucerne University of Applied Sciences and Arts, which analyzes sustainable investment funds with public sales approval in Switzerland.
CHF 21 billion in new money
Investors increasingly prefer funds that take into account environmental, social or governance-specific factors in addition to financial criteria. Of the 8,788 mutual funds licensed for distribution in Switzerland, 423 funds are described as sustainable according to the study. Existing sustainable funds attracted CHF 21 billion in new money over the observation period. This corresponds to a net inflow of funds of around 20 percent. Relative to fund assets, sustainable funds thus attract twice as much new money as the overall market of all mutual funds in Switzerland.
Swiss fund providers are particularly active
The 423 funds are offered by 119 fund providers. Among the ten largest institutions with the highest assets under management in sustainable mutual funds, four are Swiss (see Figure 2). Swiss providers are also increasingly making their presence felt with newly launched sustainable funds: Ten local institutions launched more than two new sustainability funds during the year under review. In addition to one major bank, these include selected cantonal banks and Swiss asset managers.
Passive funds become more relevant
Of the 423 sustainable funds, actively managed funds continue to have a clear preponderance (see Figure 4). Passive funds account for only 10 percent, but the growth rates are considerable: Passive sustainable funds record new money inflow rates of 33 percent. This is significantly higher than for passively managed conventional funds. Although banks and fund providers have expanded the range of passive sustainable funds by almost 50 percent over the past year, this offering remains limited.
Exclusion criteria, positive selection, and norm-based screening are common
A key differentiation criterion for sustainable funds is the sustainability strategy implemented in the investment process. In most cases, different strategies are combined: 78 percent of the 423 sustainable funds exclude certain investment objects, such as producers of certain weapons, for environmental, social or governance-specific considerations (exclusion criteria). 64 percent select investment objects that fulfill social-ecological criteria such as environmental protection particularly well (positive selection). 61 percent of the funds screen their investments for compliance with international standards such as the United Nations Global Compact (standards-based screening).
No consensus on the assessment of sustainability performance
The study shows how "sustainability" can be measured and assessed by companies. In practice, there is often disagreement about the "right" assessment criteria. Rating agencies provide assistance here in assessing the sustainability performance of companies.
Effect of funds difficult to measure
"At present, it is still difficult to measure the impact of sustainable funds," says Manfred Stüttgen. However, fund providers are trying to meet this requirement with so-called impact funds: They want to measure and report the social and ecological impact. Transparent sustainability reporting is not only important for fund providers. Measurable sustainability indicators are also becoming increasingly relevant for pension funds due to risk considerations in the investment process.
The study takes a detailed look at the implementation of sustainability criteria in the investment process of Swiss pension funds, using practical examples.
The "Sustainable Investments Study 2018" can be ordered at ifz@hslu.ch for 190 Swiss francs. A digital version of the study is available here available.
