"Sustainable and profitable – not a contradiction"
A discussion about successful interaction between ecology and economy in WERTE, Deutsche Bank’s Wealth Magazine
What does sustainability mean for Deutsche Bank? How significant is it for strategic considerations?
Sustainability has come to the forefront over the course of the financial crisis. Short-term strategies that are aimed exclusively at quick profits are not consistent with the expectations of society, which wants to see responsible financial institutions anchoring the economy. So, “sustainable performance” is one of the Deutsche Bank values that is now highlighted. Furthermore, if our clients are venturing into innovative and sustainable sectors, we have to be familiar with those sectors so we can advise clients competently – sustainability criteria are playing an ever growing role in lending and financing via capital markets.
To what extent does sustainability influence Deutsche Bank’s investment strategies?
The term “sustainability” has been overused in the past – including in the investment industry. Investment funds have been sold under the “sustainability” label that included shares in an oil corporation whose drilling platform went up in flames or shares of a power plant operator whose facility in Japan caused nuclear pollution. We demand responsible action from companies – including and above all within the framework of risk avoidance. That includes environmental issues as well as fair working conditions. Again and again we observe large corporations struggling to explain themselves because they have merchandise produced in Asia under inhumane conditions. That also has a negative impact on share prices. So we work closely together with Dr. Miltner and her team with regard to those aspects.
What exactly is your function at Deutsche Bank?
On the one hand, my team examines whether client transactions fulfill the sustainability criteria we have set for our business. Secondly, we work with the business divisions, such as Asset & Wealth Management for example, in order to identify new and sustainable market opportunities. And thirdly, it is my responsibility to communicate what the bank is doing in the area of sustainability in a transparent way, both internally and externally. This also includes regular dialog with a diverse set of interest groups such as non-governmental organizations, shareholders, clients, employees and rating agencies.
What aspects are important in that sustainability review? Could you please explain it using an example?
In the USA, we have observed a fracking boom. It involves shale gas that is extracted from bedrock with the aid of water and chemicals. It can have a potential impact on the environment and people living close to the drilling sites. Extensive shale gas reserves have also been indentified in other countries. We want to ensure that we can offer competent advice to our clients in this area. We require enhanced due diligence before a deal is agreed with ah client to ensure that the project in question not only makes economic sense, but that clients also meet prudent environmental and social industry practice standards.
So Deutsche Bank fund managers have long since had to take the criteria and the potential risk aspects into account?
Of course, they already keep an eye on that today – but perhaps not to the extent that they could. Up to now there has simply been a lack of knowledge about specific interdependencies. For example: Large-scale projects in Latin America or Africa frequently fail because of alleged “trivialities” , for example because they forget to obtain the consent of the indigenous people and tribe elders before purchasing land on location, or because the waste water from mining projects has polluted the drinking water of entire villages a few kilometers away. We train our staff to recognize those risks and evaluate them properly.
Doesn’t that mean that it will be necessary to refrain from certain business transactions if social or environmental standards are not met?
Yes, that can happen. But usually our clients are quite grateful when we draw their attention to possible or perceived weaknesses and they can then address them. That is because they know that adhering to sustainability criteria increases economic success in the long term and that investors are paying more and more attention to that.
The economic interests of our clients will still be our top priority in the future. In asset management, which is my field, Deutsche Bank is only the custodian of the money that has been entrusted to it.
Then are we not just talking about green-washing, if the ultimate objective is still only the return on investment?
Definitely not. We are convinced that companies are more successful in the stock market when they pursue a responsible approach. Responsible environmental and social activity is synonymous with economic interests, and by definition it is always in the interest of our clients. The most recent concrete example is the AATIF Fund in partnership with the German federal government and the KfW development bank: It is an economically interesting investment opportunity through which we are financing 45,000 small-scale farmers in Ghana and the production of cocoa, cotton and corn with the goal of promoting increases in income and food security. In addition, the work is being realized in accordance with social and environmental standards that have been clearly defined among the partners and published.
How much money is already being managed according to your sustainability criteria?
Today we already evaluate companies for our fund managers according to about 150 environmental and social criteria. We know how responsible companies operate and we have to incorporate that knowledge into all securities prospectuses so the client already precisely knows the criteria according to which we will invest for him. That is indispensable in terms of product accuracy and product veracity. Up to now, about three and a half billion Euros have been invested in sustainability investment funds of Deutsche Bank. All of the funds have access to our sustainability rankings and take them into consideration in their decisions. In a few years, I would like to be able to say that all of our investment funds are managed according to those criteria.
To date about 14 trillion Euros have been invested globally following some sustainability criteria. That represents only 20 percent of the overall market. In order to further increase that share, we will have to show even more clearly that sustainable investing is also profitable. We must not lose sight of sustainable investments.
The discussion was led by Michael Schneider, in charge of responsible investment in Deutsche Bank’s Asset Management, and Sabine Miltner, at that time Deutsche Bank‘s Group Sustainability Officer.
“All of the funds have access to our sustainability rankings and take them into consideration in their decisions. In a few years, I would like to be able to say that all of our investment funds are managed according to those criteria.”