Our approach to managing ES risks is based on our ES Policy Framework, which forms part of our global Reputational Risk Framework. Under the Reputational Risk Framework, reputational risk is defined as the risk of possible damage to Deutsche Bank’s brand and reputation, and the associated risk to earnings, capital, or liquidity arising from any association, action, or inaction that could be perceived by stakeholders to be inappropriate, unethical, or inconsistent with Deutsche Bank’s values and beliefs.
The Reputational Risk Framework defines consistent standards for the management of reputational risk which are set out in the Global Reputational Risk Principles and Guidelines. We made improvements to the Reputational Risk Framework during 2015, including the launch of a revised governance structure under which matters are first required to be assessed by the relevant Unit(s)2. If a matter is deemed to pose a material reputational risk, then it will subsequently be reviewed by a Regional Reputational Risk Committee, which, in turn, has the option, in exceptional circumstances, to refer matters to the Group Reputational Risk Committee (GRRC). This body holds ultimate responsibility for overseeing reputational risk at Deutsche Bank. It is chaired by a member of the Board and receives a quarterly report from our dedicated sustainability function (Group Sustainability) on sensitive topics involving reputational risk and evolving ES trends and regulations.
Our ES Policy Framework specifies the requirements for ES due diligence, and the criteria for mandatory referral to Group Sustainability. As with the wider Reputational Risk Framework, the initial responsibility lies with the Business Division. With the support of our ES framework, employees determine if a transaction or client belongs to a sector that is considered ES sensitive and requires involvement of Group Sustainability In 2015, we strengthened our referral criteria such that for certain sectors, consulting with Group Sustainability became mandatory. Where this is the case, dedicated sectoral guidelines include more probing questions. In 2015, these were expanded, and we now have eight sets of guidelines.
For all other sensitive sectors, employees are required to refer to general environmental and social provisions, and consider aspects such as the region of the activity and potential ES impacts (including human rights).
If risks are identified, the Group Sustainability function conducts further evaluation. They may draw on external sources of information such as MSCI ratings, or involve consultation with independent experts.
The resulting ES risk profile reveals if risks are acceptable, acceptable subject to specific mitigation measures, or entirely unacceptable for Deutsche Bank.
The final decision can be referred to one of the Regional Reputational Risk Committees, if necessary. If mitigation is required, a positive decision is made only if the client is willing and able to deliver on agreed actions. Here, the method and frequency of monitoring will depend on the structure and conditions of the deal.
In 2015, we transitioned the process of ES risk review to a web-based platform. This enables a clear audit trail and greater consistency and efficiency in our approach. In 2015, we assessed 1,346 transactions and clients (2014: 1,250).
2 The term “Unit” refers to any of Deutsche Bank’s business divisions, infrastructure functions, and regional management at all levels.