When managing assets sustainably, we set high sustainability standards for the companies, countries and organizations in which we invest. Our criteria are based on the analyses of Oekom Research, one of the world’s leading research and rating agencies in the sustainable investment sector. In addition, our clients are able to shape the investment guidelines of their portfolios by contributing their own positive and negative lists.
Sustainable investment products and strategies: Creating value by investing responsibly
Deutsche Bank is a competent partner for people who want to invest their money responsibly and have their assets managed with a high level of expertise and in accordance with sustainability criteria.
In the light of unpredictable stock markets and constant fluctuations in seemingly safe asset categories, taking responsibility for assets – your own or assets entrusted to your care – has become extremely challenging. This issue is compounded by strict requirements that are placed on the sustainability of the investment products. Given this environment, more and more, more and more clients are opting for professional asset management.
The Asset and Wealth Management division of Deutsche Bank offers sustainable investment products and investment strategies. It always takes the interests of specific clients into account and therefore highlights various aspects of sustainable investing.
€ 3.72 bn
of assets under management in investment funds managed according to ESG criteria
“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.”
Our specialists for sustainable asset management
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Wealth Management: Investment products for wealthy individuals, families and institutions
Sustainable asset management in the Wealth Management division of Deutsche Bank means that the client determines the overall direction and we take care of the management and implementation of what has been specified. Our clients have a number of options and can:
- Invest in securities with a sustainability profile, developed with Oekom Research, a leading rating agency for sustainable investments.
- Define investment criteria for their own portfolio themselves by specifying certain exclusion criteria.
- Invest in certified sustainable investment funds from external providers in addition to our own sustainability funds.
- Realize philanthropic goals with their investments, for example through foundations.
Asset management with sustainable investments
Philanthropic wealth management
We help wealthy individuals and organizations that want to contribute to social development through their philanthropic commitment to set up foundations. We help them to structure and manage foundation assets. We also handle administrative tasks relating to foundation management.
Individually tailored products
Taking sustainability considerations and personal ethical restrictions into account is important for our clients. Thanks to many years of experience, we are able to translate individual priorities into specific financial goals and concepts. In this way, we provide wealthy investors with access to investments in many future-oriented and sustainable projects – such as solar farms – that will benefit future generations.
Sustainable investment funds
The range of sustainable investment options we offer also includes external providers’ investment funds. We carefully examine potentially suitable investment products and select a product that is precisely tailored to the client’s needs and is a sensible option in the context of the investment objectives (Best Advice Approach).
Closed-end investments with a sustainability focus
Selecting investments with a sustainability focus is also important for closed-end investments, through which our clients can invest in:
- Photo-voltaic facilities in the sunniest regions of Europe
- Globally diversified portfolios of forest stands, forest management and the timber industry
- Stock exchange-listed companies with a focus on climate protection and green technology
- Green buildings (real estate properties that use energy, water and materials efficiently).
€ 700 mn
of sustainable assets managed in individual portfolios, mutual funds and special theme funds in Germany
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Asset Management: Managing assets in accordance with ESG criteria
More and more clients value taking environmental, social and governance criteria (ESG) into account in the management of their assets. The Eurosif Study 2012 also confirms the tendency towards more sustainability in investment of assets. According to it, the volume of sustainably oriented investments is still growing faster than the market overall. Thus, almost €12bn were invested in sustainable investment options in the year 2011. That represents a 58% increase since 2009. In Europe the growing demand is primarily determined by large pension funds. Interest among wealthy private individuals and small investors has remained relatively constant. In Asia investors are also starting to pay more attention to ESG criteria – especially after the nuclear power plant disaster in Japan. According to the “US SIF 2012 Report on Sustainable and Responsible Investing Trends in the United States”, the market in the USA is driven predominantly by corporate governance factors. Social and environmental concerns are less important than in Europe.
Many clients have become aware of this development. They know that purely financial analysis ignores important factors that may possibly be crucial to the long-term performance of an investment. That is why our Asset Management division integrates ESG criteria (Environment, Social, Governance) into the regular analysis and decision making process for investments.
Our ESG asset management guidelines are binding for all portfolio managers of the business division in Europe and supplement applicable German and European law as well as global standards. The guidelines incorporate international environmental and social standards and agreements, including the UN Global Compact, the OECD Guidelines for Multinational Enterprises and the UN Convention on Cluster Munitions.
Our experience has shown that taking ESG criteria into account in the investment process contributes to positive performance. Many of our ESG investment products have already earned top ratings from independent rating agencies.
Our investment approach
The investment approach of our Asset Management division is based on the UN Principles for Responsible Investment (PRI), an initiative of the United Nations that we joined in 2008. In the meantime, more than 1,100 institutional investors with combined assets under management of approx. $35bn US have signed the PRI. The signatories undertake to observe the six principles for responsible investment. Including incorporating environmental and social criteria as well as aspects of corporate governance (ESG) into the analysis and decision-making process. At present, our initiatives for implementing the PRI in our investment decisions have progressed the furthest in Europe.
In our investment decisions, we take ethical and other non-financial factors into consideration when evaluating risk as well as with regard to their potential contribution to the yield of an investment.
Financial data and economic benefit are the main focus of the conventional financial analysis of the Bank, but our analysis and portfolio managers also use ESG ratings, which they access via our G-CUBE investment portal. Any prospective investment in a company with a poor ESG rating or involved in contentious ESG issues must be fully justified. CO2 ratings and a CO2 reporting tool can also be accessed via the G-CUBE portal.
The UN Principles for Responsible Investment (PRI)
- We will incorporate ESG issues into investment analysis and decision-making processes.
- We will be active owners and incorporate ESG issues into our ownership policies and practices.
- We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- We will promote acceptance and implementation of the principles within the investment industry.
- We will work together to enhance our effectiveness in implementing the principles.
- We will each report on our activities and progress towards implementing the principles.
Good to know: G-CUBE
Our ESG rating method
We have implemented a separate process for dealing with companies that are deemed to fall short of the business sector average. We start with an in-person discussion and then enter into a structured dialog in writing. If a constructive dialog is impossible, we vote accordingly at the next annual general meeting and express our criticism via the media, if that is useful. To some extent, we also work together with other investors in this regard. If no improvement is evident in the medium term, we examine the exclusion of the company from our investment universe.
In the year 2012, we voted at about 200 European companies, the majority of which are domiciled in Germany. We only concurred with the proposals of the management in 50% of the cases. We frequently voted against capital increases or the appointment of members of the supervisory board. In the last two years, we have spoken at eleven annual general meetings, highlighting the importance of ESG and publicly objecting to an excessively high employee fluctuation, for example.
We invest in companies that are leaders in their sector (“best in class”) through our ESG-based investment funds. We initially evaluate the classic fundamental data of the respective companies or countries. After that we make a selection on the basis of ESG indicators ranging from environmental factors to core labor standards. When evaluating countries, we analyze regulatory prerequisites, treatment of natural resources and minimum social standards.
All indicators are weighted according to our detailed investment methodology. When selecting companies, we use external ESG ratings and only take companies into consideration if they are rated as over-average in comparison with the business sector (C rating and better). To ensure that this ESG universe is continuously in line with our “best in class” approach, we review the categorisations monthly. We exclude companies that have been given a rating worse than C for longer than six months.
The so-called “best in class” companies form our ESG investment universe, which currently encompasses about 700 firms. Then we subject that universe to a fundamental analysis that takes classic financial parameters, market potential as well as regional and business sector factors into consideration. The results are incorporated into an “idea pool” consisting of about 350 shares out of which we assemble the ESG portfolios.
ESG evaluations also constitute the foundation of our bond portfolios. Initially we perform a fundamental analysis for every issuer and every bond according to an internal classification. Then as a second step, a selection process on the basis of ESG criteria is conducted. In order to take climate protection into account, there is a third step in which we sell the companies with the highest carbon emissions on the basis of an industry-specific carbon emission vs. turnover ratio or we reduce our holdings in them. We replace issuers with weak ESG evaluations in a meticulous process in order to preserve the corresponding portfolio structures.
In the case of conventional corporate bonds, direct mandates, and investment funds we have the option of accepting issuers in spite of an under-average ESG evaluation. However, it is necessary to explicitly document that we have recognized the additional ESG risks and potentially controversial issues and why we believe that future performance is likely to over-compensate those risks. Moreover, we conduct discussions with the issuer and campaign for a more positive ESG result in future.
Special theme funds: resource and energy efficiency
Some of our global investment funds meet the demand of private and institutional investors for investments in resource and energy efficiency. For those funds, we analyze in particular those ESG factors that are relevant for the thematic orientation of the fund. In accordance with an active equity selection process, we use a multi-level screening procedure in order to identify our investment-compatible universe and a concentrated “Alpha Pool”. This summarizes the companies that have a major or growing proportion of their business activities in the relevant industries and fulfil the corresponding ESG requirements and exclusion criteria. The ESG criteria are used in addition to key financial indicators and liquidity tests. In the course of our company analysis, we also conduct regular discussions with the executive management, visit production plant locations and evaluate relevant industry information. In this context, we also analyze adherence to good corporate governance and fulfilment of social responsibility in order to take non-financial values into consideration. For these investments, we exclude companies that primarily operate in business sectors that are categorised as controversial right from the outset. For example, companies in the defence, tobacco, or adult entertainment industry. Companies that are not considered compliant with the Principles of the UN Global Compact are also not included in the fund.
Particularly private individuals and families with extensive asset structures often want to put their convictions and objectives into practice in their financial investments as well and promote social and ecological causes. Typically, those client groups have a more long-term investment horizon than other investors, because they generally would like to preserve their assets for future generations. Almost automatically leading to the application of an ESG geared investment strategy.
ESG investment strategies: Our approach to responsible investment
Co-operation with independent experts and comprehensive data bases
We utilize the expertise of external partners to expand our knowledge and skill in ESG issues. For example, an independent ESG Advisory Panel consisting of scientists and economic experts provides regular advice and reviews our analysis methods and selection criteria.
Research partners in Europe, North America, Asia and Australia supply us with data and detailed reports on approximately 4,000 global companies and 130 countries. We also obtain CO2 data on some 2,500 companies worldwide from a specialist organization. This information is incorporated into industry-specific ESG ratings.
We also work with external ESG experts and independent data suppliers as we develop investment products, in portfolio management and when preparing investment guidelines.
Reliable database: independent key figures
4,000 companies and 130 countries
Our ESG analysis process
Our analysis process consists of two steps:
- Evaluation of the basic data on the companies or countries when we are considering their securities
- Selection of investments according to established ESG criteria.
Our research teams use up to 160 indicators in our analysis of companies and about 30 when evaluating countries. In 2012, we integrated additional ESG information into our analysis portal, above all in the area of fixed-interest investments (Fixed Income). Improved data integration makes it easier for portfolio managers to access the ESG data and incorporate them into the investment process. CO2 ratings and a CO2-reporting tool have also been integrated into the Fixed Income area of the portal and the ESG ratings have been extended to include corporate and state bonds in developing and emerging countries.
Our ESG investment strategies
In accordance with the various needs of our clients, we pursue five different ESG investment strategies:
- Special theme funds
- Philanthropic investments
- Philanthropic wealth management
- Investments in real estate
With our “best in class” approach, we seek companies that achieve over-average ESG performance in a targeted manner. In other cases, we support specific sustainable goals such as the promotion of low-carbon technologies.
We also take ESG factors into account as part of our passive strategies. We offer investment funds that take the social attitudes and religious beliefs of our clients into consideration. The db x-trackers Global Fund Supporters UCITS ETF reproduces the Dow Jones Global Fund 50 Index (SM)™ for combating AIDS, tuberculosis and malaria. In addition, we have four index funds (ETFs) that comply with Sharia law in our portfolio, and the db x-trackers Stoxx® Europe Christian UCITS ETF (DR), which allows investors to invest their capital in conformity with Christian values.
How we apply exclusion criteria
Changing conditions mean that we have to regularly update the exclusion criteria of our sustainability funds. For example, after the decision in favour of a nuclear power phase-out in Germany in 2011, we reviewed the investment criteria for the nuclear industry. After discussion with clients and the external experts on Deutsche Bank’s Climate Change Advisory Board, we reached the conclusion that nuclear energy is a ‘bridge’ technology that will be needed for the time being to secure a low-carbon power supply. That is why we continue to invest in that industry.
Facts and figures
business analysis indicators
How we exercise our voting rights as trustees
As manager of our clients’ assets, we also actively exercise voting rights in their names, including proxy voting at annual shareholder meetings of companies in which we hold securities in trust. We always comply with the specifications of our voting rights guidelines.
These guidelines define the principles of good corporate governance, which we use to evaluate the companies in question. The principles incorporate internationally applicable standards, including the German Corporate Governance Code, the Corporate Governance Principles of the International Corporate Governance Network, the anti-corruption principle defined by the UN Global Compact and other established environmental and social standards. We also require reports concerning material ESG data and on responsibility for ESG issues on the executive management board.
Furthermore, we seek to engage in dialog with the companies or countries in question to help them improve their ESG performance and achieve long-term sustainable added value.
ESG investment products for new asset classes
Our institutional investment business develops specialized products – such as fixed income – for new asset classes. This business area supports the approach of the UN Principles for Responsible Investment (UN PRI) aimed at incorporating ESG criteria to a greater extent in problematic asset classes using a debt strategy for emerging markets. The investment funds that we have issued in accordance with these principles include ESG Emerging Markets External Debt, ESG Total Return AAA High Grade Fixed Income, and Environmental Corporate Credit.