Fond managers should go back to schoolDIE WELT, 10.08.2013 | by Karsten Seibel
Michael Schneider: In reality it is a mammoth task and I am under no illusions that it can be achieved in a few months. However the very fact that I have been appointed as Head of ESG for Deutsche Asset & Wealth Management shows how seriously the subject is taken by senior management at the Bank. Thinking is genuinely changing.
DIE WELT: Deutsche Bank tends to evoke investments in armament companies and highly criticized food speculation. Do you not think you are being rather abused as an alibi for the much-publicized cultural change instigated by the new management?
Schneider: Not in the slightest. In fact, the discussion about food speculation demonstrates how important my job is. We could simply say we don’t engage in such activity and get some applause from a few NGOs. But in such an emotionally charged discussion, my question is who represents the views of farmers in Africa who often account for well over half of the population? I know the situation in many such countries. I am the fund manager for a development cooperation fund for African agriculture in which Deutsche Bank participates. That is why I can say: When wheat is expensive on the Chicago Mercantile Exchange then that is surely not a bad thing for a farmer in Zambia. By contrast: this is when it is advantageous for him to produce more than his own needs because it would be extremely expensive to import the cereal at such high international market prices.
DIE WELT: Do you mean African farmers should be grateful that Deutsche Bank is standing by food speculation?
Schneider: I take a different view. Things are rarely just black or white. On such subjects we have to admit there are grey areas. Let’s take another example: the feed-in tariffs for solar and wind energy producers. As an investor, should we support this because it may accelerate a change in the energy generation landscape? Or are such allowances in fact counterproductive because they make energy unnecessarily expensive and create false incentives? Both sides have good arguments. This is something we will discuss much more thoroughly with our investors in future.
DIE WELT: And who decides in the end what is good or bad?
Schneider: Clients, investors and the general public need to start talking about the correlation of these issues much more than they did in the past. We want to encourage this and as Deutsche Bank we want to take the lead.
DIE WELT: So Deutsche Bank forgoes some returns for the greater good?
Schneider: Let’s be clear: The economic interests of our clients are, and will remain, our primary objective. There is no other way. In Asset Management, which is what we are discussing here, Deutsche Bank is simply the trustee for money entrusted to it. We are not permitted to say that our clients will earn nothing from this equity, but we feel better because it is in the fund portfolio.
DIE WELT: So the saying does apply: "Food first, then ethics"
Schneider: That is simply returning to black or white. As a company, we take the line that companies are more successful on the stock exchange when they pursue a responsible approach. Responsible actions in environmental and social terms should have equal weight to economic interests. So, by definition that is in the interest of our clients.
DIE WELT: By "responsible" do you mean a sustainable approach?
Schneider: I am not keen on the word "sustainable". It has been completely over-used – not least by the investment sector. The "sustainable" label was used to market funds which included equities of an oil company which had a rig explode in flames, or a power station operator whose plant in Japan caused a catastrophe. We call on companies to behave responsibly – most especially to avoid risk. This includes environmental issues just as much as fair employment conditions. Time and time again, we see companies embroiled in a PR crisis because they produce goods in Asia under inhuman conditions. That has an impact on their equity price.
DIE WELT: But surely Deutsche Bank fund managers already consider such risk areas when they pick stocks?
Schneider: Yes of course they consider these already, but perhaps not to the extent that they should. Up to now there has been a lack of real knowledge about how these things correlate. Major projects in Latin America or Africa often collapse because of details which were considered minor, for example, because land purchase should never take place without involving and getting approval from the indigenous population and local elders, or because waste water from a mining project poisons the drinking water of numerous villages just a few kilometers away. We want to heighten understanding of these issues with training. And we want to enhance the databanks used by our fund and asset managers to select securities.
DIE WELT: What role have alternative rating agencies like Oekom played so far at Deutsche Bank?
Schneider: We already receive their reports. Over the coming months I will assess what influence they actually have on investment decisions. The goal is to examine all portfolios against sustainability criteria in both the short and long term and, if necessary, to discuss individual positions with the fund manager.
DIE WELT: Oekom warned about Greek sovereign bonds at a very early stage as well as the enormous defense budget. A timely sale could have avoided losses for both Deutsche Bank and their clients.
Schneider: I would like to leave to one side whether the defense budget of an EU country should be considered a suitable criterion. In future we will definitely take greater account of such points in investment decisions. Both companies and indeed countries must behave more responsibly if they want to continue to secure money from our clients. As trustees we want to be in constant dialogue and this has an impact on how we act at shareholders’ meetings, for example.
DIE WELT: Do you mean fund managers will speak up more often?
Schneider: We will address environmental and social issues much more directly at shareholders’ meetings this coming year.
DIE WELT: When will the one trillion euros handled by Asset & Wealth Management be managed according to your parameters?
Schneider: We already evaluate companies for fund managers against approximately 150 environmental and social criteria. We know how responsible companies conduct their business. We plan to expand this and communicate it. As I already said, we should not give the impression that this will happen overnight. In the end, we must give details in every securities prospectus so that before he commits his money the customer knows on which criteria we base an investment decision. That is essential to product transparency and accuracy.
DIE WELT: What proportion of funds under management does this already apply to?
Schneider: Around three and a half billion euros are in stated Deutsche Bank sustainable funds. However, all funds have access to our sustainability rankings and utilize these in making their decisions. In a few years I want to be able to say that all our funds are managed according to these criteria.
At the time of the interview Michael Schneider was in charge of responsible investment in Deutsche Bank’s Asset Management.
“We call on companies to behave responsibly – most especially to avoid risk. This includes environmental issues just as much as fair employment conditions.”