Deutsche Bank

Corporate Responsibility
Report 2015

ESG in asset management

An important part of the Deutsche Asset & Wealth Management’s (AWM) strategy is further develop our environmental, social and governance (ESG), sustainable and impact investing businesses. There exists a range of investment styles and practises from exclusion to impact, which coexist depending on the investor’s motivation and intended purpose of investment. Deutsche AWM offers a range of products responding to these different styles and expectations – from managing assets that encompass active and passive ESG screening to sustainable investment funds see chapter Sustainable investments, green real estate assets, and social finance innovations. See chapter Impact investment Pioneering new impact investments confirm our commitment to identifying ESG risks for vulnerable communities.

By the end of 2015, Deutsche AWM reported €7.7 billion of assets including overlays incorporating ESG criteria (2014: €5.4 billion), representing 0.7% of total assets under management and a 41.5% increase from the prior year. We undertook a further review of ESG fund classifications, which led to improvements to ESG in assets under management in 2015. The last year has also seen further inflows into certain active funds. We will continue to review the process of ESG classification to ensure a high standard of reporting.

ESG and sustainable assets under management

In € m.

2015

2014

2013

1

Growth due to the creation of several new funds and net inflows into existing funds.

2

Growth due to the creation of a new fund and the re-classification of two existing funds.

3

Growth due to growth in existing funds, the inclusion of three funds in Sal Oppenheim and two funds managed in Alternatives and Fund Services

Deutsche AWM managed assets with a volume of € 1,100 billion (December 31, 2015)

Active management

 

 

 

Retail and institutional funds, including screened, best-in-class and themed funds for institutional, wealth and private retail clients

5,2551

4,220

3,787

Passive investments

 

 

 

Exchange traded funds, products or mandates

1492

41

163

Sustainable/impact/alternative investments

 

 

 

Private equity or debt-type funds focused on sustainable/impact investing, including public–private blended finance funds with environmental or social objectives

2,2793

1,175

1,128

Total

7,683

5,436

5,078

Active management

Improved awareness, traceability of value chains, and visibility of ESG issues is allowing our Deutsche AWM investment teams to identify risks and opportunities that traditional financial analysis sometimes fails to systematically address. The integration of ESG analysis adds value to the quality of our investment decisions, as well as adds opportunities for higher risk-adjusted returns.

Investors, clients, and other stakeholders are increasingly calling for greater corporate transparency in order to make decisions that incorporate traditional financial metrics and material non-financial information. We believe ESG analysis can assist portfolio managers in identifying companies that are leaders in their industries, that are better managed and more forward-thinking, and that are better placed at anticipating opportunity and mitigating risk.

The universe of investment practices compared
The universe of investment practices compared (chart)The universe of investment practices compared (chart)

Source: Adapted from Bridges Ventures (July 2012).

For our actively managed products, we apply an integration and screening strategy. Our analysis of relative ESG performance relies on a proprietary ESG rating methodology, which generates a score for each company from A to F (best to worst). We process raw data and scores supplied by an independent ESG research provider to derive these internal ratings. Moreover, we employ an external controversy indicator that flags critical ESG issues, which range from 1 to 5 (low to high risk). These extra-financial criteria are an integral part of our investment process. The aspects are interpreted within the context of our security selection process, and in turn the impact (weaknesses and strengths) they have on the different analyzed areas such as business model, industry environment, competitive position, strategy and transparency among others.