How do you assess the development of impact investing in recent years? Did it develop as you expected?
Jörg Geier: We are on the right track. However, we need to further accelerate our efforts to trigger the necessary economic and social transformation: The International Finance Cooperation's Investing for Impact report states that in 2020, 2.3 trillion US dollars were invested in impact issues. This corresponds to about 2% of global assets under management (AUM). Impact investing is still a small market niche, but one that is attracting growing interest. The European Commission published its "Strategy to finance the transition to a sustainable economy" in 2021. As part of the strategy, there are several packages of measures, including an EU taxonomy framework and standards for sustainable finance, which are intended to provide the necessary incentives for more impact investment. Such legal frameworks are essential to advance the sustainable transformation of the economy. So something is happening.
As the COVID 19 pandemic has shown, crises can even strengthen corporate resilience: an increasing number of investors recognise that companies with strong ESG practices performed better during the pandemic, further underpinning the sustainable orientation of corporate strategy. Nevertheless, there is still a lot of room for improvement: The measurability of impact is a necessary foundation to make further progress in areas such as CO₂ emissions and biodiversity. After all, an objective value can only be assigned in the financial world insofar as something can be measured. That's why more and more impact-oriented start-ups are popping up in this area.
In other countries, such as the UK, the government actively promotes impact investing. Do you think the German government could also make such a recommendation in the foreseeable future, or is impact investing still too little present in the country for that?
The coalition agreement of the German government published in November 2021 shows that the traffic light coalition wants to strengthen the market for sustainable finance in Germany. The previous government coalition had already launched the "German Strategy for Sustainable Finance" in May 2021 in order to establish climate protection and sustainability as key guiding principles for the financial sector. In the chapter on "Sustainable Finance", the coalition agreement of the red-green-yellow government primarily addresses EU initiatives already underway. The focus here is also on dialogue with the business community by integrating ecological and social values into existing accounting standards. The coalition parties also aim to implement minimum requirements at EU level so that the major rating agencies take sustainability risks into account in credit ratings on a mandatory basis.
The German Federal Financial Supervisory Authority is also working on a directive for sustainable investment funds on the basis of EU regulations in order to define how capital management companies must structure their funds in future if they want to describe or advertise them as sustainable. Nevertheless, investing in shares has a different tradition in many Anglo-Saxon countries than in Germany. Therefore, in Germany, it is not only a matter of creating awareness for impact investing, but also for an understanding of investing that goes beyond the much-loved savings book, especially among older people. This may be an additional hurdle.
Will impact investing also reach the millions of small shareholders that now exist in Germany? So far there are only very few offers for them.
Jörg Geier: Not least because of the steadily growing interest in sustainable financial products among investors and small shareholders, the pressure on providers is also increasing. As a result, more funds are being offered that are subject to sustainable investment criteria. Exchange-traded index funds, so-called ETFs, could be an alternative to conventional funds. There are also sustainable variants of ETFs. Direct investments in individual stocks generally require greater background knowledge. Companies are also rated by rating agencies according to so-called ESG criteria; but in order to be able to classify them, different criteria and personal preferences, such as environmental or social concerns, often have to be weighed up.