Our social and environmental risk framework
As we lay out in our Values, we are committed to doing what is right, not only what is legally allowed. Thus, we must consider risks that go beyond the traditional financial risks intrinsic to our business, such as credit and market risk. We evaluate potential environmental and social (ES) risks that could arise from transactions or interactions with our clients.
When assessing environmental and social (ES) risks in certain cases, the answers are clear-cut. For example, Deutsche Bank will not finance pornography or weapons such as cluster munitions or key components thereof. Most ES risk issues, however, are more complex. As a global bank, we serve all sectors of the economy. It is therefore not always feasible to eliminate all environmental and social risks from our business. We avoid business, however, that could have negative impacts on ecosystems and society. If impacts are unavoidable, they should be mitigated as much as possible through implementing the appropriate improvement measures. We have several mechanisms in place to thoroughly consider the possible environmental and social risks arising from transactions or client relationships. Based on these evaluations, we determine the best course of action.
Implementing guidance for environmental and social risks
Our approach to managing environmental and social (ES) risks is based on a Policy Framework that defines consistent standards for the identification, assessment and management of reputational risks at Deutsche Bank. It is implemented via specific principles and guidelines. To support our business units in assessing the ES risks that result from client relationships or transactions, general ES provisions are included in the guidelines. The general provisions define sensitive sectors, specify the requirements for ES due diligence and include criteria for mandatory referral to Group Sustainability. More detailed sectoral guidelines support the general provisions. In 2015, we assessed 1,349 potential transactions using our ES Policy Framework (2014: 1,250). As of 2015, we have moved the ES review process to a specifically designed web-based platform.
Sensitive sectors and topics
We identify a number of sectors that, due to the nature of their activities, are more exposed to ES risks:
- Aerospace and defense
- Steel, metals and mining
- Oil and gas
- Pulp, paper and forestry
- Other activities with high carbon intensity
Across these sectors, we identify issues that require specific ES risk management. These are addressed through our policy framework and guidance is provided to our people when making decisions. We monitor global developments in order to identify emerging environmental and social trends and pressure points. In developing our position on certain environmental and social topics, we refer to recognized standards, principles or guidelines such as the World Bank/IFC Performance Standards and the UN Guiding Principles on Business and Human Rights. We also review existing sectoral standards and industry best practices to help with our decision making on topics such as nuclear power, palm oil or shale gas.
Sustainability is a rapidly evolving field and standards may not always be available or adequate to deal with pressing issues such as climate change. Therefore, our understanding and management of ES risks is also greatly informed through our engagement with civil society organizations, industry and academic experts, research institutions, our clients and peers in the financial sector. Conducting wide-ranging dialogue allows us to work with these groups to define or improve standards and voluntary commitments and to discuss ways to apply them in the financial sector. It also supports mutual learning, develops an appreciation of the significance and complexity of the issues, and helps to identify potential solutions. As a result of such dialogue, we can work constructively and communicate openly with our critics, articulating our position on key issues and explaining the limitations inherent to banking products and services.
Our business decisions are based on extensive research and careful evaluation. The following case studies illustrate this process and the underlying considerations of the decision that was ultimately made.