Corporate Responsibility in a changed environment
In 2012 the banking industry once again faced substantial challenges, including low and volatile growth around the world, continuous rapid social and demographic change, especially in emerging markets, and a demanding regulatory landscape. When the Corporate Responsibility Report 2012 was published in April 2013, the Bank took stock:
A period of unprecedented disconnect between the banking industry and society also prevailed throughout the year. In fact, research placed the financial sector behind all others for the second consecutive year on being trusted “to do what is right”. As a leading member of the financial services industry, Deutsche Bank faced its share of public criticism, particularly in our home market, Germany.
This was also a year of transition for us. New management announced the Bank’s strategy 2015+. Culture change is one of the key levers of this strategy. The change program builds on the strength of the past while focusing ever more on the needs of clients and partnership. In particular, intensifying our efforts to make our business more sustainable has to be an integral part of this change, and not just in the economic sense – the social and environmental dimensions have a vital role to play as well. Therefore, our behavior and the business we select needs to be anchored in our identity and the values of society.
Effecting true change will take time, but the message is clear: Our performance culture has to be synchronized with a culture of responsibility.
As a global bank, we must be both competitive and financially successful in an international environment. This way, we are able to create value not only for our investors and clients, but also for our employees and society as a whole. Creating value is only sustainable, however, if we are able to reach our financial targets and goals while meeting high environmental and social standards. Therefore, we understand Corporate Responsibility as providing value with values; we see it as crucial that our values meet the expectations and standards of our stakeholders while allowing us to operate sustainably as a business.
We make the most direct contribution to society by applying our financial expertise to the needs of our clients. We provide advice and services to individuals, companies and governments and play a vital part in wealth creation. Our services range from transforming savings into capital to managing cash and payments; from investing assets on behalf of pension funds and other institutional investors to securities trading, risk management and advising on corporate finance.
Moreover, we support activities which directly advance sustainability, such as renewable energy finance, microfinance and impact investment funds. These are areas that face some challenges in the near term due to the current economic climate, but we expect strong growth over the next decade as the transformation toward cleaner and more sustainable growth continues.
Beyond our core business, we invest directly in the societies in which we operate. Around the world, we enable educational, social and cultural projects that build social capital and bring about positive change.
“Our objective is to incorporate environmental, social and governance considerations throughout our business.”
Balancing stakeholder needs
We are very aware of potentially conflicting expectations and interests of shareholders, clients, employees and the general public. Therefore, we have to evaluate the impact of our business and consequently balance financial returns with social acceptance and benefits for our stakeholders. Corporate Responsibility implies that we continually strengthen our approach to environmental, social and governance issues and improve transparency by monitoring the direct and indirect impact of our activities.
In 2012 some of our banking activities have again attracted criticism, including issues around food speculation, the production of cluster munitions and transactions in the energy sector. We take the concerns seriously and will adapt our governance framework and business practices wherever necessary, based on changes identified through dialog with stakeholders and careful analysis of the facts.
We applied this approach in 2012, when some groups held us responsible for global hunger. We temporarily stopped the launch of new investor products based on soft commodities, conducted a careful and in-depth analysis of the possible connections between our business and the implied impact on agricultural commodity prices, and consulted with academics. When we had considered the evidence our Management Board decided to continue as these activities have an overall positive impact.
Leading with responsibility
Reflecting our growing concerns about environmental and social risks, Deutsche Bank introduced an Environmental and Social Risk Framework. In 2012, the Framework is being gradually rolled out across the organization and significant progress has been achieved. It involves environmental and social due diligence as an integral part of the approval process for all transactions. In the initial phase of implementation, special emphasis has been placed on transactions originated by our investment banking and global transaction banking business in sensitive sectors such as the extractive industry, agriculture and forestry or utilities.
Within the Framework and with the support of the Group Reputational Risk Committee, we produced guidance for our activities in a variety of sectors, ranging from palm oil to nuclear power. Greater awareness and stricter guidelines led to more escalations to higher management. In 2012 alone, 102 transactions were escalated to regional, divisional or the Group Reputational Risk Committee due to environmental or social criteria, 16 of which involved environmental and social risks.
We also introduced a Responsible Business Initiative in our Private & Business Clients business, setting minimum standards for products. These Product Principles are voluntary guidelines which commit us to offer only products that are transparent and ethical in nature. Our clients rightly expect advice that is balanced in regard to risk and opportunities and that also serves their needs. In addition to the Product Principles, we have articulated a list of exclusion criteria for each product line that guides both new product development as well as existing product review.
Promoting sustainable financial products
We apply social and environmental risk criteria to increasingly more investment products. Our Asset and Wealth Management division manages 3.72 billion euro of assets integrating environmental, social and governance (ESG) criteria.
We extended ESG integration in our mainstream analysis with a series of upgrades to our internal investment portal. This improves the accessibility and ease of use and thus facilitates integration of ESG into the investment process by individual portfolio managers. Improvements included adding carbon ratings and a carbon reporting tool to the fixed income part of our investment portal and extending ESG ratings to the Corporate and Sovereign fixed income research platform for developed and emerging markets.
Deutsche Bank also launched the 100 million US-Dollar Global Commercial Microfinance Consortium II fund. It will help Microfinance institutions develop new products – such as housing loans – and will introduce fund investors to promising social enterprises in healthcare, education, energy, agribusiness and technology.
Advancing sustainable practices in the financial sector
We contribute to the debate on important topics for our industry, specifically to advance thinking on sustainability issues in our industry and beyond. Therefore we engage with many organisations - formally and informally. The Bank is a member of policy think tanks and industry associations and maintains dialog with policy makers and regulators in all the countries we operate in, most importantly in Berlin, Brussels, London and New York. In 2012, we provided input to the Financial Stability Board and other supervisory bodies on key topics including oversight of shadow banking and derivatives.
In addition, we work through industry initiatives such as econsense, debating sustainability ratings in 2012 with competitors and rating agencies. We also play a leading role in the Banking Environmental Initiative (BEI). Through BEI, we worked with five other banks and clients from the energy industry to explore how alternative valuation methods could stimulate clean energy investments.
In 2012 we supported new thinking and acceptance of environmental, social and governance factors in the investment community by hosting the UN PRI’s Academic and German conference and the third ESG corporate day for German quoted companies. We have also launched a cooperation with Maastricht University to enhance our understanding of the interplay between sustainabiltity and financial markets. Deutsche Bank research also tackled questions of sustainability; papers published in 2012 included “Sustainable Investing: Establishing Long-Term Value and Performance”.
The questions and challenges that have been posed to us from the general public also led us to engage in a wide-ranging dialog on banking and sustainability. Discussions with NGOs in 2012 included controversial topics such as mining, cluster munitions and agribusiness. Informal co-operation with competitors enables an exchange of experience and ideas relevant for the industry as well.
Running an environmentally friendly business
Our thought leadership aligns squarely with our corporate responsibility in the area of climate change. As a globally active bank, we must act as leaders in combating climate change, so we aim to reduce our environmental footpring to the absolute minimum.
We set a target to make our operations carbon neutral by yearend 2012. The goal was achieved over a five year period by reducing the Bank’s global carbon footprint by 20 percent per year since 2007. We invested in energy efficiency projects to reduce energy use and costs, purchasing and generating on-site renewable electricity and offsetting our inevitable emissions by purchasing and retiring high-grade offset certificates (CER).
Our broad basket of climate change related activities earned Deutsche Bank a place in the Carbon Disclosure Leadership Index as one of 33 companies worldwide for the first time.
Connecting performance with responsibility
To support a culture of responsibility, we rolled out a new performance management approach in 2012, underpinned by a set of High Performance Principles that were agreed to in consultation with employees and their representatives. The Principles aim to enhance the feedback culture and to contribute to a more differentiated approach in the evaluation of performance. It’s not only a question of what performance our employees deliver, it’s also a question of how they deliver it.
We also aligned compensation practices. The new approach has a strong behavioral focus at all levels of the organization. We reward people according to long-term orientation and sustainability, client focus and teamwork. An independent external panel was set up to review the structure and governance of our compensation approach. Some of the panel’s recommendations directly influenced decisions regarding this year’s compensation packages.
As an “Employer of Choice” we see a responsible culture of achievement that is based on fair compensation and that challenges our employees as a fundamental value.
Active global corporate citizen
€ 82.7 mn
invested in social projects worldwide.
Building social capital
We are not only involved in sustainability efforts particular to our business. In spite of the challenging markets, we invested 82.7 million euro in social projects as one of the most active global corporate citizens of 2012. We aim to create social capital through initaitves that help to resolve structural inefficiencies and to foster social equality.
In 2012, more than 19,500 Deutsche Bank employees around the world (24 percent of global staff) supported community projects as Corporate Volunteers, committing almost 30,000 days in total. To encourage even more colleagues to personally commit themselves, we have further strengthened the visibility of our Corporate Volunteers, making them a role-model for their peers. In addition, we have launched the Global Corporate Volunteer Award to recognize community involvement beyond the Bank’s programs.
We have further strengthened our management framework to ensure that resources are efficiently deployed and projects are fully aligned with our objective to build social capital. In 2012, we rolled out our annual Global Impact Tracking (GIT) across all regions. With this tool, we monitor the impact of our flagship programs and systematically collect feedback from our community partners.
The evaluation of flagships (minimum investment of 25,000 euro each) confirm we are on target with our agenda: Projects are evenly allocated (1/3 each) across our key areas of activity – Education, Social Investments, Art & Music. Our close cooperation with other supporters enhances the impact we are able to generate. The main beneficiaries of our flagship programs are children and young people. Last but not least, the GIT-data underpin the long-term approach we take: 37 percent of the initiatives we support run over a period of 1-3 years, 40 percent even longer than that.