DBTCA - Deutsche Bank Trust Company Americas (applicable solely to Germany-domiciled Discretionary Portfolio Management Clients)
The Sustainable Finance Disclosure Regulation (SFDR) 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.
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 authorized 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 authorized 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 authorized in accordance with Directive 2009/65/EC which has not designated a management company authorized 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 authorized 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 labor 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 authorized 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 for Deutsche Bank Trust Company Americas (applicable solely to Germany-domiciled Discretionary Portfolio Management clients), 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 the investment decision-making process. The approach taken by DBTCA is further detailed below.
DBTCA applies an overarching approach to the management of sustainability that is set out in a number of group level policies and procedures. 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 DBTCA's view on sustainability topics.
While DBTCA does not currently apply an overarching formal policy regarding the integration of sustainability risks in the investment decision-making process, DBTCA still takes sustainability risks into account, as further described in the 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
Regulation (EU) 2019/2088 of the European Parliament (the “Regulation”) defines a “sustainability risk” as “an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of the investment”. Sustainability risks may occur both separately and cumulatively, may affect individual companies as well as entire sectors or regions and may have very different characteristics.
The following are examples of sustainability risks:
- As a result of the occurrence of extreme weather events as a consequence of climate change (known as physical risks), 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 insurance costs. Furthermore, extreme weather events as a consequence of climate change, such as long periods of water shortages during drought, can impair or make impossible the transport of goods.
- 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 plants. New technologies can displace familiar technologies (e.g. electric mobility), and changes in customer 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 labor law standards (for example, child labor and forced labor) and compliance with changing occupational health and safety regulations.
- Examples of risks that arise within the scope of corporate management due to inadequate corporate governance are failures to act in accordance with applicable laws that can lead to criminal penalties and/or high fines, such as tax evasion and anti-corruption laws.
Sustainability risks affect the following traditional risks of investments in securities in particular, and if they occur can have a significantly negative effect on investment performance:
· Sector risk
· Price change risk
· Issuer/Credit risk
· Dividend risk
· Liquidity risk
· Currency risk
Method of incorporating sustainability risks for Financial Markets Participants:
DBTCA takes sustainability risks into account within the scope of discretionary portfolio management in the following manner:
In order to evaluate sustainability risks, DBTCA uses information provided by external service providers that specialize in the qualitative evaluation of environmental, social and governance (ESG) factors. These factors are considered during the construction of investment strategies and security lists available for selection by DBTCA portfolio managers.
Because sustainability risks can have different effects on individual companies, sectors, investment regions, currencies and investment classes (for example, equities or bonds), when managing investment portfolios DBTCA reduces the effects of the occurrence of sustainability risks at the portfolio level by diversifying the portfolio’s investments and asset allocations.
1.2 Adverse sustainability impacts statement
Statement on principal adverse impacts of investment decisions on sustainability factors for Deutsche Bank Trust Company Americas (DBTCA), Legal Entity Identifier 8EWQ2UQKS07AKK8ANH81 (applicable solely to Germany-domiciled Discretionary Portfolio Management clients of DBTCA)
DBTCA (Legal Entity Identifier 8EWQ2UQKS07AKK8ANH81) considers principal adverse impacts of its investment decisions on sustainability factors in connection with Discretionary Portfolio Management services provided by DBTCA to German-domiciled clients. The present statement is the consolidated statement on principal adverse impacts on sustainability factors of DBTCA.
This statement on principal adverse impacts on sustainability factors covers the reference period from January 1, 2022 to December 31, 2022.
The principal adverse impacts, including their identification, prioritization and any action to be taken to manage exposure to them, will be reviewed by Deutsche Bank AG (DBAG)-wide governance forums annually in accordance with the DBAG Policy Framework. Currently, DBTCA follows a principles-based approach. As the regulatory requirements and associated data change on an ongoing basis, DBTCA is fully committed to integrating a more thorough and exhaustive principal adverse impact framework into its Discretionary Portfolio Management services in alignment with such developments.
Given its fiduciary status, DBTCA makes all investment decisions in the best financial interests of its clients and, in doing so, takes all relevant financial and risk factors into consideration. Considering principal adverse impacts is therefore an additional aspect to be reviewed by DBTCA’s portfolio managers when making investment decisions but will not automatically outweigh other relevant factors. DBTCA and/or its affiliates work with third-party data providers to assist in obtaining and implementing into the investment portfolio decision-making process the appropriate principal adverse impact. This enables it to include information on the principal adverse impacts across the applicable universe on a monthly basis.
DBTCA 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 regarding the consideration of sustainability criteria are still emerging and reporting frameworks have not yet come into force, data with regard to the adverse effects on sustainability factors is currently not always available from the issuers of securities contained in Discretionary Portfolio Management accounts or third-party data providers.
The first reference period for quantitative reporting is January 1, 2022 to December 31, 2022, with such report to be published by June 30, 2023.
Description of the principal adverse impacts on sustainability factors
DBTCA 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 January 1 to December 31, 2022, and the quantitative aspects report will be published by June 30, 2023. This report will also include any actions planned and taken. Historical year-over-year comparisons will be incorporated in the report starting in 2023.
While DBTCA will carry out quantitative reporting in respect of all mandatory principal adverse impacts set out in the SFDR, DBTCA as a financial market participant will take into consideration the following subset of the mandatory principal adverse impact indicators in connection with its Discretionary Portfolio Management activities:
- 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 (e.g., coal, oil, natural gas)
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 must fulfil fundamental responsibilities in the areas of human rights, labor, the environment and anti-corruption
Exposure to controversial weapons
Industries that derive revenues from the manufacture or sale of controversial weapons (e.g., anti-personnel mines, cluster munitions, chemical, biological, radiological and nuclear weapons)
The subset of these 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 includes robust asset allocation across different regions, asset classes and sectors, which means that principal adverse impacts are not always applicable, or that principal adverse impact data is not readily available for all of the securities invested in client investment portfolios.
Where DBTCA acts as a financial market participant, the following additional principal adverse impacts will be included for the quantitative reporting from June 2023:
- 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 analyzed. 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
This factor identifies the number of severe and very severe controversies in the previous three years related to human rights violations.
Description of policies to identify and prioritize principal adverse impacts on sustainability factors
DBAG has established a robust governance structure to assist it to manage, measure and monitor sustainability activities across the bank. This governance structure includes a number of forums devoted to sustainability. The most senior of these governance structures is the Group Sustainability Committee, which was created in 2020. Chaired by the Chief Executive Officer and the Chief Sustainability Officer (Vice-Chair) of DBAG, it consists of DBAG Management Board members, the heads of DBAG’s business divisions and certain infrastructure functions.
DBTCA applies an overarching approach to the management of sustainability that is set out in various DBAG group-level policies and procedures.
As the regulatory requirements and data change on an ongoing basis, DBTCA – where it acts as a financial markets participant – does not have a single defined policy relating to the principal adverse impacts. Where relevant, however, they are covered by existing procedure documents. DBTCA is fully committed to integrating a more thorough and exhaustive principal adverse impact framework into its Discretionary Portfolio Management services to reflect the changes.
DBTCA follows frameworks for financial markets participants that 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 DBTCA’s managed portfolios. It is of the utmost importance that DBTCA, given its fiduciary capacity, makes all investment decisions in the best interests of its clients and, in doing so, takes all financial and risk factors into account. Considering these principal adverse impacts is therefore an additional aspect to be reviewed by DBTCA’s portfolio managers when making investment decisions but will not automatically outweigh other relevant factors.
For financial products that utilize a sustainable investing approach, DBAG has additionally specified a Sustainable Classification Criteria Policy (published in 2021) that must be adhered to. DBTCA and/or its affiliates utilize 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.
DBTCA, in its role as a financial market participant, identifies and incorporated selected and prioritized 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. DBTCA 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.
DBTCA also regularly performs an assessment to determine the materiality of non-financial topics for the bank and its stakeholders. As part of this assessment, DBTCA 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 DBTCA’s business activities, business relations, and products and services.
For the assessment of principal adverse impacts on sustainability factors, DBTCA 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.
DBTCA does not guarantee that information provided by issuers of securities contained in Discretionary Portfolio Management accounts or by third-party data providers is or will be correct or complete. DBTCA also has no ability to prevent any disruptions to any third-party data provider’s analysis and research preparation.
For a variety of reasons, including the continuing evolution of the standards and regulatory framework regarding the consideration of sustainability criteria, data on the consideration of principal adverse impacts may not always be available to DBTCA and/or its affiliates, and as a result there may still be restrictions on the ability of DBTCA and/or its affiliates to consider principal adverse impacts. To reduce the likelihood of these restrictions, DBTCA and/or its affiliates have carefully selected third-party data providers and maintain close contact with those providers with regard to changes in the quality of the data.
Where DBTCA acts as a financial market participant for financial products within the scope of the SFDR, it does not engage directly with the issuers of securities held in Discretionary Portfolio Management accounts.
References to international standards
As a more general matter, DBAG embeds 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 DBAG and its affiliates and subsidiaries (including DBTCA) to maximize 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, DBAG formally endorses universal sustainability frameworks and initiatives. For example, DBAG 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 Investment (through DWS, 2008), the Principles for Responsible Banking (2019) and the Net-Zero Banking Alliance (2021).
DBAG follows internationally recognized principles for sustainable business and banking conduct, such as:
· The ten principles of the UN Global Compact
· The UNEP FI Principles 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 recognized 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), DBTCA is indirectly aligning its ESG investment strategies offered to Discretionary Portfolio Management clients with certain principal adverse impacts when acting as a financial markets participant.
For portfolio management services, DBAG invests in developing net-zero-aligned, forward-looking climate scenarios that are aligned with the Paris Climate Agreement. However, DBAG does not currently consider climate scenarios in its investment decision-making process.
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 DB 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
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
DBTCA acts in the capacity of a Financial Market Participant, and may offer financial products in scope of the Disclosure Regulation. Currently DBTCA does not offer to Germany-domiciled clients any products that promote environmental and social characteristics (Article 8).
1.4.2 Products with sustainable investment objective
DBTCA acts in the capacity of a Financial Market Participant, and may offer financial products in scope of the Disclosure Regulation. Currently DBTCA does not offer to Germany-domiciled clients any products that have a sustainable investment objective (Article 9).