Sustainability Disclosures – Deutsche Bank (Suisse) SA
Introduction
SFDR[1] came into effect on March 10, 2021. SFDR imposes new transparency obligations (Website disclosures, Pre-Contractual disclosures) & periodic reporting requirements on investment management firms at both a product and entity/manager level. This section relates to the “Website Disclosure” regulatory obligations arising out of SFDR Articles 3-10. More information can be found on the below links.
Definitions
For the purposes of this Regulation, the following definitions apply:
(1) ‘financial market participant’ means:
(a) an insurance undertaking which makes available an insurance‐based investment product (IBIP);
(b) an investment firm which provides portfolio management;
(c) an institution for occupational retirement provision (IORP);
(d) a manufacturer of a pension product;
(e) an alternative investment fund manager (AIFM);
(f) a pan‐European personal pension product (PEPP) provider;
(g) a manager of a qualifying venture capital fund registered in accordance with Article 14 of Regulation (EU) No 345/2013;
(h) a manager of a qualifying social entrepreneurship fund registered in accordance with Article 15 of Regulation (EU) No 346/2013;
(i) a management company of an undertaking for collective investment in transferable securities (UCITS management company); or
(j) a credit institution which provides portfolio management;
(2) ‘insurance undertaking’ means an insurance undertaking authorised in accordance with Article 18 of Directive 2009/138/EC;
(3) ‘insurance‐based investment product’ or ‘IBIP’ means:
(a) an insurance‐based investment product as defined in point (2) of Article 4 of Regulation (EU) No 1286/2014 of the European Parliament and of the Council (19); or
(b) an insurance product which is made available to a professional investor and which offers a maturity or surrender value that is wholly or partially exposed, directly or indirectly, to market fluctuations;
(4) ‘alternative investment fund manager’ or ‘AIFM’ means an AIFM as defined in point (b) of Article 4(1) of Directive 2011/61/EU;
(5) ‘investment firm’ means an investment firm as defined in point (1) of Article 4(1) of Directive 2014/65/EU;
(6) ‘portfolio management’ means portfolio management as defined in in point (8) of Article 4(1) of Directive 2014/65/EU;
(7) ‘institution for occupational retirement provision’ or ‘IORP’ means an institution for occupational retirement provision authorised or registered in accordance with Article 9 of Directive (EU) 2016/2341 except an institution in respect of which a Member State has chosen to apply Article 5 of that Directive or an institution that operates pension schemes which together have less than 15 members in total;
(8) ‘pension product’ means:
(a) a pension product as referred to in point (e) of Article 2(2) of Regulation (EU) No 1286/2014; or
(b) an individual pension product as referred to in point (g) of Article 2(2) of Regulation (EU) No 1286/2014;
(9) ‘pan‐European Personal Pension Product’ or ‘PEPP’ means a product as referred to in point (2) of Article 2 of Regulation (EU) 2019/1238;
(10) ‘UCITS management company’ means:
(a) a management company as defined in point (b) of Article 2(1) of Directive 2009/65/EC; or
(b) an investment company authorised in accordance with Directive 2009/65/EC which has not designated a management company authorised under that Directive for its management;
(11) ‘financial adviser’ means:
(a) an insurance intermediary which provides insurance advice with regard to IBIPs;
(b) an insurance undertaking which provides insurance advice with regard to IBIPs;
(c) a credit institution which provides investment advice;
(d) an investment firm which provides investment advice;
(e) an AIFM which provides investment advice in accordance with point (b)(i) of Article 6(4) of Directive 2011/61/EU; or
(f) a UCITS management company which provides investment advice in accordance with point (b)(i) of Article 6(3) of Directive 2009/65/EC;
(12) ‘financial product’ means:
(a) a portfolio managed in accordance with point (6) of this Article;
(b) an alternative investment fund (AIF);
(c) an IBIP;
(d) a pension product;
(e) a pension scheme;
(f) a UCITS; or
(g) a PEPP;
(13) ‘alternative investment funds’ or ‘AIFs’ means AIFs as defined in point (a) of Article 4(1) of Directive 2011/61/EU;
(14) ‘pension scheme’ means a pension scheme as defined in point (2) of Article 6 of Directive (EU) 2016/2341;
(15) ‘undertaking for collective investment in transferable securities’ or ‘UCITS’ means an undertaking authorised in accordance with Article 5 of Directive 2009/65/EC;
(16) ‘investment advice’ means investment advice as defined in point (4) of Article 4(1) of Directive 2014/65/EU;
(17) ‘sustainable investment’ means an investment in an economic activity that contributes to an environmental objective, as measured, for example, by key resource efficiency indicators on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions, or on its impact on biodiversity and the circular economy, or an investment in an economic activity that contributes to a social objective, in particular an investment that contributes to tackling inequality or that fosters social cohesion, social integration and labour relations, or an investment in human capital or economically or socially disadvantaged communities, provided that such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance;
(18) ‘professional investor’ means a client who meets the criteria laid down in Annex II to Directive 2014/65/EU;
(19) ‘retail investor’ means an investor who is not a professional investor;
(20) ‘insurance intermediary’ means an insurance intermediary as defined in point (3) of Article 2(1) of Directive (EU) 2016/97;
(21) ‘insurance advice’ means advice as defined in point (15) of Article 2(1) of Directive (EU) 2016/97;
(22) ‘sustainability risk’ means an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment;
(23) ‘European long‐term investment fund’ or ‘ELTIF’ means a fund authorised in accordance with Article 6 of Regulation (EU) 2015/760;
(24) ‘sustainability factors’ mean environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters.
1.1 Sustainability Risk Policy
Article 3: Transparency of sustainability risk policies for financial market participants and financial advisors for Deutsche Bank (Suisse) SA, March 2021
Introduction / Summary
On March 10, 2021 the Regulation (EU) 2019/2088 of November 27, 2019 on sustainability-related disclosures in the financial sector (Disclosure Regulation) has entered into force. This regulation aims to support sustainable investments by requiring Financial Market Participants (FMPs) and Financial Advisers (FAs) to disclose information regarding sustainability risks to investors and clients.
Article 3 of this regulation requires information to be shared with regards to the integration of sustainability risks within investment decision-making processes and investment advice. The approach taken by Deutsche Bank (Suisse) SA is further detailed below.
Deutsche Bank AG applies an overarching approach to the management of sustainability that is set out in a number of group level policies and procedures, which also apply to Deutsche Bank (Suisse) SA as member of Deutsche Bank Group. The group-wide Sustainability Policy delineates our main sustainability principles as well as the key requirements and responsibilities in connection with sustainability-related enquiries, non-financial sustainability reporting and ratings, environmental and social due diligence in the context of reputational risk management, and, together with relevant risk frameworks and broader commitments, provides relevant context regarding the Bank’s view on sustainability topics.
Whilst Deutsche Bank AG does not currently apply an overarching formal policy regarding the integration of sustainability risks in the investment decision‐making and advisory processes, Deutsche Bank AG still takes sustainability risks into account, as further described in following sections. In addition, business areas are working towards inclusion of the integration of sustainability risks within relevant policies and guidelines. These will be further enhanced on an ongoing basis as more sustainability related data becomes available over time.
Definition of sustainability risks
Sustainability risks (“ESG risks”) are designated as incidents or conditions in the areas of the Environment, Social or Corporate Governance, whose occurrence could have actual or potential significantly negative effects on the value of the investment. These risks can occur both separately and cumulatively; they can affect individual com¬panies or also entire sectors/branches or regions and can have very different characteristics.
The following examples can help to clarify sustainability risks:
As a result of the occurrence of extreme weather events as a consequence of climate change (known as physical risks), for example, production locations of individual companies or entire regions can be impaired or destroyed, leading to production stoppages, rising costs to restore the production locations and higher insu¬rance costs. Furthermore, extreme weather events as a consequence of climate change, such as long periods of low water during droughts, can impair the transport of goods or even make it impossible.
There are also risks in connection with the changeover to a low-carbon economy (known as transition risks): for example, political measures can lead to fossil fuels becoming more expensive and/or scarcer (examples: fossil-fuel phase-out, CO2 tax) or to high investment costs as a result of requirements to renovate buildings and plant. New technologies can displace familiar technologies (e.g. electric mobility), and changes in custo¬mer preferences and expectations in society can endanger companies’ business models if they do not react in time and take counter measures (by adjusting their business model, for example).
A substantial increase in physical risks would require a more abrupt changeover in the economy, which in turn would lead to higher transition risks.
Social risks arise from aspects such as non-compliance with labour law standards (for example, child labour and forced labour) and compliance with occupational health and safety regulations.
Examples of risks that arise within the scope of corporate management due to inadequate corporate gover¬nance and that can lead to high fines include non-compliance with taxpayer honesty and corruption.
Sustainability risks affect the following traditional risks of investments in securities in particular, and if they occur, could have a significantly negative effect on the yields of an investment in securities:
· Sector risk
· Price change risk
· Issuer/Credit risk
· Dividend risk
· Liquidity risk
· Currency risk
Method of including sustainability risks for Financial Markets Participants and Financial Advisors:
In order to evaluate sustainability risks, Deutsche Bank AG uses information such as that from external service providers that have specialised in the qualitative evaluation of ESG factors.
Because sustainability risks can have different effects on individual companies, sectors, investment regions, currencies and investment classes (for example, equities or bonds), when recommending financial instruments in the Bank follows the approach of diversifying investments as broadly as possible in order to reduce the effects of the occurrence of sustainability risks on the client´s portfolio. The Bank generally recommends distribution across a variety of investment classes in order to establish an individual client opportunity/risk pro¬file. In addition, investment advice pursues a policy of a broad spread of investment classes in a variety of bran¬ches/sectors, investment regions and currencies.
In addition to diversification, for Financial Market Participants, sustainability risks are taken into account at various points in the investment process when making investment decisions within the framework of financial portfolio management. Sustainability risks are taken into account during the macro-economic consideration and development of market opinion, when allocating assets to individual investment strategies and when selecting individual financial instruments.
1.2 Adverse sustainability impacts statement
1.2.1 Financial Market Participant
Statement by Deutsche Bank (Suisse) SA on principal adverse impacts of investment decisions on sustainability factors
Introduction / Summary
Deutsche Bank (Suisse) SA, 529900BXKPMXQTRE1V05, a wholly owned subsidiary of Deutsche Bank AG, considers principal adverse impacts of its investment decisions on sustainability factors. The present statement is the consolidated statement on principal adverse impacts on sustainability factors of Deutsche Bank AG, and its subsidiaries (including Deutsche Bank (Suisse) SA (“Deutsche Bank”).
The principal adverse impacts factors (i.e. identification, prioritisation and any action to be taken to manage exposure related thereto), are reviewed by Deutsche Bank. In this respect, forums are held annually in accordance with the internal Policy Framework to assess the relevant factors to consider. Deutsche Bank follows a principle-based approach to assess the relevant factors of the principal adverse impact. As the regulatory requirements and associated data related thereto are reviewed on an ongoing basis, Deutsche Bank aligns its factors on a regular basis.
As of 10 March 2021, Deutsche Bank makes factors relating to select principal adverse impacts transparent against the investment universe. Hence, it enables to make informed decisions in the selection process for the construction of relevant financial products.
In this context, the focus is on making the data available in the processes for the selection of underlying products for Deutsche Bank’s advised funds and managed portfolios. The principal adverse impacts factors is an additional aspect to be reviewed by Deutsche Bank’s portfolio managers when taking investment decisions. However, the principal adverse impacts factors are not the only factors taken into account when taking investment decisions.
Deutsche Bank works with third-party data providers to help it to obtain the required data and monitor its investable product universe. This enables it to include information on the principal adverse impacts across the applicable universe on a monthly basis.
Deutsche Bank will continue to monitor its exposure to adverse sustainability indicators and will adapt its strategy in accordance with its first quantitative statement publication by June 2023.
As standards of sustainability criteria are still emerging and reporting frameworks have not yet come into force. Hence, data on sustainability criteria are not always available from the capital management companies, the bank’s issuers or third-party data providers, especially with regard to the adverse impacts on sustainability factors.
The first reference period for quantitative reporting is 1 January to 31 December 2022, and the quantitative aspects will be published before 30 June 2023.
Description of the principle adverse impacts on sustainability factors
Deutsche Bank is required to collect data on adverse impact indicators and prepare an annual quantitative and qualitative report on them. The first reference period for quantitative reporting is 1 January to 31 December 2022, and the quantitative aspects will be published before 30 June 2023. This statement will then also include any action planned and taken. A historical comparison will be added in the following year, i.e. in the statement for the year 2023.
Deutsche Bank will carry out quantitative reporting in respect of all mandatory principal adverse impacts set out in the Disclosure Regulation. Deutsche Bank considers selected principal adverse impact indicators within its investment process. Indicators are selected on the basis of data availability, alignment with adverse activities on which the Deutsche Bank Group is particularly focused and the sustainable investment classification criteria, which set out the criteria to be met in the manufacturing of sustainable products. The investment process must allow for robust asset allocation across different regions, asset classes and sectors, which means that principal adverse impacts are not always applicable, or data is not readily available for all of the securities invested in.
The prioritised principal adverse impacts are as follows:
• Greenhouse gas (GHG) emissions
• Exposure to fossil fuels
Industries that derive revenues from the exploration, mining, extraction, distribution or refinement of solid, liquid or gaseous fuels (i.e. coal, oil, natural gas)
• Carbon emissions
The carbon dioxide equivalents released by a company, measured by volume and intensity
• Social and employee matters
• Compliance with United Nations Global Compact principles
At a minimum, companies need to fulfil fundamental responsibilities in the areas of human rights, labour, the environment and anti-corruption
• Exposure to controversial weapons
Industries that derive revenues from the manufacture or sale of controversial weapons (i.e. anti-personnel mines, cluster munitions, chemical, biological, radiological and nuclear weapons)
Additional principal adverse impacts will be included for the quantitative reporting from June 2023 where Deutsche Bank acts as a financial market participant.
• Additional environmental factor: investments in companies without carbon emission reduction initiatives
This factor indicates whether a company’s implied temperature rise (in 2100 or later) is estimated to be at or below 2°C if the economy as a whole has the same over-/undershoot level of greenhouse gas emissions as the company being analysed. The implied temperature rise is based on the company’s projected Scope 1, 2 and 3 emissions.
• Additional social factor: number of identified cases of severe human rights issues and incidents
Number of severe and very severe controversies in the last three years related to human rights violations
Description of policies to identify and prioritise principal adverse impacts on sustainability factors
Deutsche Bank has established a robust governance structure, helping it to manage, measure and monitor sustainability activities across the Deutsche Bank group. This governance structure includes a number of forums devoted entirely to sustainability.
The most important governance structure is the Group Sustainability Committee, which was created in 2020. Chaired by the Chief Executive Officer and the Chief Sustainability Officer (Vice-Chair), it consists of Management Board members of Deutsche Bank AG, the heads of Deutsche Bank business divisions and certain infrastructure functions.
Deutsche Bank applies an overarching approach to the management of sustainability , that is set out defined in various group-level policies and procedures.
As the regulatory requirements and data change on an ongoing basis, Deutsche Bank does not have a single defined policy relating to the principal adverse impacts.
Deutsche Bank is fully committed to integrating a more thorough and exhaustive principal adverse impact framework into its discretionary portfolio management services to reflect the changes.
Frameworks for financial markets participants describe the core processes, responsibilities, governance structures and monitoring environment. These stipulate that portfolio managers are provided with selected principal adverse impact information alongside the investment universe, enabling them to make informed decisions in the selection process for the construction of relevant financial products. The focus is on making the data available in the processes for the selection of underlying products for Deutsche Bank’s advised funds and managed portfolios. It is of the utmost importance that Deutsche Bank makes all investment decisions in the best interests of its clients and, in doing so, takes all financial and risk factors into account. Therefore, considering these principal adverse impacts is an additional aspect to be reviewed by Deutsche Bank’s portfolio managers when making investment decisions but will not automatically outweigh other relevant factors.
For financial products that follow a sustainable investing approach, Deutsche Bank has additionally specified a sustainable classification criteria policy (published in 2021) that has to be adhered to. Financial markets participants use third-party data providers in order to exclude or set threshold limits for exposure to industries or practices that are aligned with selected adverse sustainability indicators.
Deutsche Bank identifies and prioritises selected principal adverse impact indicators within its investment process. Indicators are selected on the basis of data availability, alignment with adverse activities on which the Deutsche Bank Group is particularly focused and the sustainable investment classification criteria, which set out the criteria to be met in the manufacturing of sustainable products. The investment process must allow for robust asset allocation across different regions, asset classes and sectors, which means that principal adverse impacts are not always applicable, or data is not readily available for all of the securities invested in. Deutsche Bank group will continue to monitor its exposure to adverse sustainability indicators and will adapt its strategy in accordance with its first quantitative statement publication in June 2023.
Deutsche Bank also regularly performs an assessment to determine the materiality of non-financial topics for the bank and its stakeholders. As part of this assessment, Deutsche Bank assesses any potential significant risks that are very likely to have or will have a severe negative impact on a material non-financial topic in terms of Deutsche Bank’s business activities, business relations, and products and services.
For the assessment of principal adverse impacts on sustainability factors, Deutsche Bank relies on data provided by capital management companies, investment funds and a third-party data provider. If no data from the capital management company or investment fund company is available, data from a third-party data provider is used.
Deutsche Bank does not guarantee that this information is correct or complete. Furthermore, Deutsche Bank cannot guarantee the correctness of the third-party data provider’s assessment. Deutsche Bank also has no influence on any disruptions to the third-party data provider’s analysis and research preparation.
As the standards and the regulatory framework regarding the consideration of sustainability criteria are still evolving, data on the consideration of principal adverse impacts is not always available.
As data is not always available and a third-party data provider is used, there may still be restrictions on the consideration of the principal adverse impacts.
To minimise these restrictions, Deutsche Bank has carefully selected its third-party data provider and maintains close contact with regard to changes in the quality of the data.
Engagement policies
Where Deutsche Bank acts as a financial market participant for financial products within the scope of the Disclosure Regulation, it does not currently engage directly with investee companies and therefore does not influence their business activities or risks.
References to international standards
Deutsche Bank is embedding sustainability into its policies, processes and products, focusing on four dimensions: Sustainable Finance, Policies & Commitments, People & Operations and Thought Leadership & Stakeholder Engagement. Making progress in these dimensions will enable Deutsche Bank to maximise its contribution to the achievement of the Paris Climate Agreement’s targets and the United Nations (UN) sustainable development goals. To underpin its long-standing commitment to sustainability, Deutsche Bank formally endorses universal sustainability frameworks and initiatives. For example, it is a member of the United Nations Environment Programme Finance Initiative (UNEP FI; 1992) and a signatory to the ten principles of the UN Global Compact (2000), the Principles for Responsible Banking (2019) and the Net-Zero Banking Alliance (2021).
Deutsche Bank Group follows internationally recognised principles for sustainable business and banking conduct, for example:
• The ten principles of the UN Global Compact
• The UNEP FI Principles for Responsible Banking
• The UN Guiding Principles on Business and Human Rights
A full list and further details of the standards adhered to can be found at Deutsche Bank Memberships, Commitments and International Guidelines (db.com).
By adhering to certain internationally recognised standards, such as the United Nations Global Compact principles, stipulating its maximum exposure to certain sectors, e.g. thermal coal and/or unconventional oil/gas, and excluding activities in connection with, for example, controversial weapons (including weapons systems, nuclear weapons, anti-personnel mines, incendiary weapons and cluster munitions), Deutsche Bank is indirectly aligning its ESG investment strategies with certain principal adverse impacts when acting as a financial markets participant.
In its portfolio management services, Deutsche Bank collaborates with third-party data providers to obtain data related to the sustainability factors of investee companies in respect of both direct and indirect investments. For ESG investment strategies, this includes (but is not limited to) assessing whether the investee universe has exposure to UN Global Compact or OECD violations (PAI 10) or to controversial weapons (PAI 14).
For portfolio management services, Deutsche Bank invests in developing net-zero-aligned, forward-looking climate scenarios that are aligned with the Paris Climate Agreement. However, Deutsche Bank does not currently consider climate scenarios in its investment decision-making process.
1.2.2 Financial Advisor
1.3 Remuneration Policy
Sustainability and Remuneration
The consideration of Sustainability and Sustainability Risks is an integral part of the performance-based determination of variable compensation at DB group, both for employees and the Management Board.
Where appropriate, we have set sustainability related targets which include financial and non-financial targets such as sustainable financing and investment volumes as well as culture and conduct.
Furthermore, we expect all employees of Deutsche Bank to adhere to the sustainability principles stipulated in our code of conduct, which aim to generate sustainable value for our clients, employees, investors and society at a large. The code of conduct is embedded in our governance, policies, processes, and control systems.
1.4 Sustainability-related product disclosure section
The information contained in this section is provided in accordance to Art. 10 of the REGULATION (EU) 2019/2088 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of November 27, 2019 on sustainability-related disclosures in the financial services sector (the Disclosure Regulation).
1.4.1 Products promoting environmental or social characteristics
Financial Portfolio Management considers environmental and social characteristics:
Deutsche Bank acts in the capacity of a Financial Market Participant, and offers financial products in scope of the Disclosure Regulation. The following provides an overview of products offered that promote environmental and social characteristics (Article 8).
Disclosure on the inclusion of environmental or social characteristics in pre-contractual information
Disclosure on the inclusion of environmental or social characteristics in periodic reports
Periodic disclosure for the financial products referred to in Article 8 of the Disclosure Regulation
Disclosure on the inclusion of environmental or social characteristics in pre-contractual information
Disclosure on the inclusion of environmental or social characteristics in periodic reports
Periodic disclosure for the financial products referred to in Article 8 of the Disclosure Regulation
Disclosure on the inclusion of environmental or social characteristics in pre-contractual information
Disclosure on the inclusion of environmental or social characteristics in periodic reports
Periodic disclosure for the financial products referred to in Article 8 of the Disclosure Regulation
Disclosure on the inclusion of environmental or social characteristics in pre-contractual information
Disclosure on the inclusion of environmental or social characteristics in periodic reports
Periodic disclosure for the financial products referred to in Article 8 of the Disclosure Regulation
1.4.2 Products with sustainable investment objective
Deutsche Bank (Suisse) SA acts in the capacity of a Financial Market Participant, and offers financial products in scope of the Disclosure Regulation. Currently Deutsche Bank (Suisse) SA does not offer any products which have a sustainable investment objective (Article 9). The following provides an overview of products offered that have a sustainable investment objective (Article 9).
- No products currently in scope