Study by DWS and CREATE-Research shows pension funds growing interest in impact investing

Twenty-two percent of pension funds surveyed have already implemented, or are implementing, impact investing as part of their passive investments
More than half of survey participants believe that the growing interest in thematic funds will transform into impact investing over time
Around 28% of pension funds expect to integrate impact investing-focused indices into their portfolios in the next three years

Impact investing is set to penetrate capital markets, and passive investments such as exchange-traded funds (ETFs) and mandates will be an important driver of this development. This is the central finding of the latest study by DWS and CREATE-Research: Impact Investing 2.0 - Advancing into public markets. Impact investing is generally understood to mean forms of investment that have a social and/or environmental goal in addition to a financial return.

The study shows that the advance of impact investing is driven by two key data points: to reach the global net zero target by 2050, investments of USD 100 trillion are likely to be required; and to implement the United Nations' 17 Sustainable Development Goals (SDGs) by 2030, annual spending of USD 5 trillion to USD 7 trillion is needed. Private markets cannot raise this capital on their own due to their limited scalability. However, publicly traded instruments such as funds and ETFs offer both the scale and reach to mobilise the needed capital.

The extent to which this development has progressed is shown in the report, which is based on a survey of 50 of the largest pension funds in North America, Europe, Asia and Australia, which together manage assets of €3.3 trillion (As of July 2022). The report finds that 22% of pension funds have already implemented, or are currently implementing, impact investing as part of their passive investments.

"Pension funds increasingly see it as their duty to contribute, on behalf of their pensioners, to mitigate the negative effects of past economic development on the environment, climate and biodiversity. There is still a long way to go, but the important first step has been taken," said Amin Rajan, Chief Executive of CREATE-Research.

As net zero and the UN’s SDGs can be replicated with rules-based indices such as EU Paris-aligned and EU climate transition benchmarks, SDG index products, or even green bond indices, as well as thematic passive exposures using ETFs and mandates, can help impact investing make a breakthrough in the public markets.

The report backs this up, with 58% of survey participants believing the growing interest in thematic funds will evolve into impact investing over time. Sixty-four percent believe that the net zero target will favour impact investing, while 54% expect SDGs to provide new opportunities. Twenty-eight percent of pension funds expect to use SDG and EU Paris-aligned and EU climate transition indices over the next three years.

"CREATE-Research's important study shows that ETFs and passive mandates can make all the difference in helping impact investing break through on a broad scale. We are already seeing high demand from private and institutional investors for index concepts that formulate concrete goals, and we will be further expanding our efforts in this area," said Simon Klein, Global Head of Passive Sales at DWS.

The full report, Passive Investing 2022: Impact Investing 2.0 - Advancing into public markets can be downloaded here: Study

About DWS Group

DWS Group (DWS) is one of the world's leading asset managers with EUR 928bn of assets under management (as of 31 December 2021). Building on more than 60 years of experience, it has a reputation for excellence in Germany, Europe, the Americas and Asia. DWS is recognised by clients globally as a trusted source for integrated investment solutions, stability and innovation across a full spectrum of investment disciplines.

We offer individuals and institutions access to our strong investment capabilities across all major asset classes and solutions aligned to growth trends. Our diverse expertise in Active, Passive and Alternatives asset management – as well as our deep environmental, social and governance focus – complement each other when creating targeted solutions for our clients. Our expertise and on-the-ground-knowledge of our economists, research analysts and investment professionals are brought together in one consistent global Chief Investment Office (CIO View), which guides our investment approach strategically.

DWS wants to innovate and shape the future of investing: with approximately 3,600 employees in offices all over the world, we are local while being one global team. We are investors – entrusted to build the best foundation for our clients’ future.

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