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 SFDR: Integration of sustainability risks in the scope of Deutsche Bank Private Bank discretionary portfolio management, investment advice and insurance-based advice

1.0 Introduction

Regulation (EU) 2019/2088 of the European Parliament and of the Council on sustainability-related disclosures in the financial services sector (“SFDR”) requires financial market participants and financial advisors to disclose on their website information regarding the integration of sustainability risks within investment decision-making processes and investment advice.

 

The following sections describe Deutsche Bank Private Bank’s approach to integrating sustainability risks in investment decision-making and investment advisory processes. These will be further enhanced on an ongoing basis with due consideration of regulatory and market changes.

2.0. Summary

Deutsche Bank Private Bank applies an overarching approach to the management of sustainability activities that are set out in several Deutsche Bank group-level policies and procedures, which also apply to Deutsche Bank (Suisse) SA as member of Deutsche Bank Group. The group-wide sustainability policies delineate Deutsche Bank’s 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, provide relevant context regarding the Bank’s view on sustainability topics.

 

Details on our approach to sustainability can be found on our website.

2.1  Definition of sustainability risks

‘Sustainability risk’ as defined in SFDR 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 an investment. These risks can occur both separately and cumulatively; they can affect countries, individual companies, entire sectors/branches or regions and can have very different characteristics.

2.2  Examples of sustainability risks

 

Environmental risks –

 

  • Physical risks — As a result of the occurrence of extreme weather events as a consequence of climate change, 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 insurance costs. Furthermore, extreme weather events due to climate change, such as long periods of low water during droughts, can impair the transport of goods or even make it impossible. A substantial increase in physical risks would require a more abrupt changeover in the affected economy, which in turn would lead to higher transition risks.
  • Transition risks — There are risks in connection with the changeover to a low-carbon economy: 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 facilities. New technologies can displace familiar technologies (for example 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 countermeasures (by adjusting their business model, for example).

 

 

Social risks – These arise from aspects such as non-compliance with labor law standards (for example, child labor and forced labor) and non-compliance with occupational health and safety regulations.

 

Governance risks— risks that arise within the scope of corporate management due to inadequate corporate governance and that can lead to high fines including non-compliance with taxpayer honesty and corruption.

 

While sustainability risk is not a standalone risk, it can be identified indirectly through the effect on existing traditional risk (including, but not limited to market, liquidity, credit, price change, currency risk etc.) which could have a significant negative effect on an investment.

 

3.0. Method for integrating sustainability risks:

3.1  Overall approach

 

Because sustainability risks can have different effects on individual companies, sectors, investment regions, and asset classes (for example, equities or bonds), when recommending financial instruments, or taking investment decision on behalf of the clients, Private Bank follows the approach of diversifying investments as broadly as possible to reduce the effects of the occurrence of sustainability risks in the client´s portfolio. To evaluate sustainability risks in relation to financial instruments for purposes of investment advice and its discretionary portfolio management mandates, Private Bank uses information from (an) external service provider(s) that has/have specialized in the qualitative and quantitative evaluation of Environmental, Social, Governance (ESG) factors.

 

Where Private Bank recommends a financial instrument to a client with sustainability preferences or takes an investment decision for purposes of strategies considering sustainability factors within its discretionary portfolio management mandates, Private Bank has set differentiated criteria such as minimum ESG ratings by a third-party, and exclusions of companies depending on the promoted environmental and/or social characteristics per type of financial instrument. This approach helps in reducing the likelihood of sustainability risks which may negatively affect the return of a financial instrument.

 

3.2   Discretionary Portfolio Mandate Business (“DPM Business”)

 

Within Deutsche Bank Private Bank, both strategies not considering ESG factors and strategies considering ESG factors are offered depending on the sustainability preferences of the client.

 

Sustainability risks are considered at various points in the investment process when making investment decisions. Sustainability risks are taken into account during the macroeconomic consideration and development of market opinion by the Chief Investment Office (CIO) when developing Deutsche Bank Private Bank’s house view, when allocating assets classes for purposes of investment strategies and when selecting individual financial instruments.

 

For DPM strategies that consider ESG factors and are offered to clients with sustainability preferences, Principle Adverse Impact (PAI) data is taken into consideration when selecting financial instruments. PAI are defined as “negative, material, or likely to be material effects on sustainability factors that are caused, compounded by, or directly linked to investment decisions and advice performed by the legal entity”. Private Bank’s portfolio managers consider this information alongside other financial and non-financial information before making investment decisions.

 

3.3   Investment and insurance advisory business

 

When providing investment advice to its clients, the Bank pursues a policy of a broad spread of asset classes in a variety of branches/sectors, investment regions, and currencies.

 

For clients with sustainability preferences, Private Bank will further conduct due diligence for qualitative assessment of funds and alternatives through ESG questionnaire for ESG dedicated products. Assessment focuses on aspects including, but not limited to the level of ESG integration in the investment process, ESG resources at the asset manager, etc.

 

When selecting insurance products, Private Bank is considering whether the insurance partners are offering a broad diversification of investments and whether they are also considering sustainability risks. 

1.2 Adverse sustainability impacts statement

1.2.1 Financial Market Participant

 

 

1.2.2 Financial Advisor

Statement on consideration of the principal adverse impacts on sustainability factors when providing investment advice 

 

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
 

Pre-contractual disclosure for financial products referred to in Article 8(1) of Disclosure Regulation

 

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

 

Pre-contractual disclosure for financial products referred to in Article 8(1) of Disclosure Regulation

 

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

Pre-contractual disclosure for financial products referred to in Article 8(1) of Disclosure Regulation

 

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

References

1.

https://eur-lex.europa.eu/eli/reg/2019/2088/oj


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