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Deutsche accelerates commitment to ESG in wealth business


Deutsche Bank Wealth Management’s recent announcement that it is significantly accelerating its ESG strategy is an example of tapping into the zeitgeist, says Markus Mueller, Head of the Chief Investment Office of Deutsche Bank Wealth Management.

The wealth management business of Deutsche Bank is adopting ESG ratings from MSCI, to give clients valuable standardised information on non-financial risks and opportunities when making investment decisions.

“The main drivers behind this decision is a kind of change in pattern of behaviour and consciousness of client-side activity, which comes also mainly from millennials who have a contemporaneous change in their behaviour, which we also see in the real economy,” Mueller says.

“Client demand is changing and we also see the changes in our environment. The basis for our economic activity is changing as well in a direction where it needs protection and consciousness as we have a responsibility for next generations and we play an important intermediary role.”
For Mueller, the German word zeitgeist nicely summarises the current mood. “As a wealth manager we have to play a role that fits into the zeitgeist,” he says.
Deutsche’s open architecture approach means that it conducts fundamental research to find the solutions for clients that fit best the purpose of the clients, Mueller says.
Within Germany and Italy, the bank has offered ESG within discretionary management for more than 10 years. “We have a substantial experience of working with individual investors because we have a global business,” Mueller says.
“We have discovered that you don’t have to compromise on performance if you include ESG criteria and in fact it can be an important risk mitigation tool within a portfolio that previously neglected environmental considerations, and governance issues coming into play.

“These are all things that have given us a high conviction that ESG is an important area within investment activity. Within challenging markets there is not really a negative outcome for ESG strategies and in upside markets, it’s also not a negative. We have 10 years’ worth of Sharpe ratios and volatility ratios that speak for themselves.”
2018 saw the bank establish a group sustainability council which works across all the business divisions.
“We make sure that our business units align in regards to sustainable activity. It is an overarching layer for Deutsche bank that, as a whole, guarantees that all our business units are up to date with developments. We also analyse sectors and economy on the topic from top down and bottom up – it is part of our research activity. Our portfolio managers continually assess that our ESG portfolios are state of the art and up to date with recent developments and conditions.”
However, Mueller says that clients and relationship managers need to understand the ESG offering and the incorporation of a formal rating gives everyone an ability to engage in the development.

Performance using ESG filters can still be strong, Mueller says. “You don’t have to compromise on performance but it goes hand in hand with portfolio construction. You have to have an eye on portfolio construction as just focusing on ESG factors themselves is not enough.

“ESG consciousness in a company and incorporated in a company strategy is likely to effect the company, giving it higher profitability and lower exposure to tail risk. At the end of the day, ESG is not just risk mitigation but it is also a positive narrative to consider.”

He also comments that in researching companies that have high ESG ratings with innovative business models, the investor will be looking forward.
“You want to have the blue-chip companies of tomorrow already in your portfolio today,” Mueller says.

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