by Richard Schmidt, Head of Absolute Return and Co-Fund Manager of the DWS Concept DJE Responsible Invest and Julian Müller, MBA, Head of Sales Institutional Clients at DJE Kapital AG
Sustainability: The new power of financial markets
Whether it is human rights, responsible corporate governance or environmental protection – the topic of sustainability has long left its niche and has taken hold in key areas of economy and life. The demand for investments with a sustainable orientation is also increasing among investors. Green investing is a global megatrend that will continue to grow in importance. In the next ten to 25 years it will be decided whether our planet will remain habitable as usual – or whether future generations will have to cope with much worse conditions. This challenge is also changing the way we invest money.
Green leverage throught investment
In the right investment there is an enormous green leverage for every investor. Because the amount of CO2 savings they make through green investments is far greater than most of the smaller savings potentials from our daily lives. For example, if you invest 25,000 euros in the DWS Concept DJE Responsible Invest (ISIN LU0185172052), this results in a CO2 saving of 750 kg compared to a standard investment in non-sustainable indices. This is equivalent to the consumption of 250 litres of fuel or driving 5,000 km in a mid-range diesel car. In other words, the question of whether to put up a real or an artificial Christmas tree, for example, is much less important from an ecological point of view than a sustainable and profitable investment.
New power of markets
In addition, the financial market has become an effective means of bringing about significant changes in the behaviour of companies and their managers. For companies that do not adapt it is more difficult to obtain capital and they pay significantly higher borrowing costs than green companies. On average their performance is also worse than that of sustainable companies. This means that managers of these companies now have a clear financial incentive to become sustainable because their variable income is also measured by the performance of the company.
Sustainability as performance criterion
Entrepreneurs who took care of good corporate governance and the well-being of their employees as well as the environment at an early stage have a crucial added value: they are usually proactive managers who are also able to identify market trends early on and bring innovative products to the market. Over the past two years, it has also become apparent that this focus has had a positive impact on the performance of a large number of sustainable funds.
An important point is that sustainable investing prompts many investors to make profitable investments in so-called megatrends. This involves investing in companies that benefit, for example, from the megatrends aging society, electric mobility or health. In the DWS Concept DJE Responsible Invest, the trend towards fuel cells or hydrogen technology plays a major role.
Holistic company analysis in focus
The consideration of sustainability criteria in the investment process contributes to a more holistic view of companies and ultimately also to a reduction of the investment risk. While in the past it was mainly a question of sales revenues, profitability and valuation, a wide range of sustainable aspects are now being added. In the environmental sector, these may include water and energy management, the type of product packaging or biodiversity. In the social area, for example, the focus is on data security, working conditions, supply chains, remuneration and consumer protection. If you take all these points into account in your investment decision, you get a much more comprehensive picture of the company and reduce the risk of misjudgement.
Systematic analysis process with MSCI
To systematically ensure compliance with sustainability principles, DJE works with MSCI ESG Research, the leading international provider of environmental, social and governance analyses and ratings. The entire equity universe is screened using the MSCI ESG filters, including CO2 emissions relative to turnover, land and resource consumption, water quality, biodiversity and corruption.
With the DWS Concept DJE Responsible Invest, we are meeting the growing demand from institutional and private investors for investments with a strong sustainability focus. The fund is fully compliant with global standards and uses very restrictive ESG filters to ensure systematic compliance with sustainability principles. In the future, a company's sustainability rating will be just as important as the financial credit rating by rating agencies. This means that compliance with ESG standards also pays off economically for companies.
With the help of the MSCI ESG filters, we can exclude companies that violate the so-called UN Global Compact – a worldwide pact that is made between companies and the United Nations to make globalization more social and ecological. This reduces the company-specific investment risk. Risks caused by violations of human and labor rights or by environmental pollution are avoided.
Alignment with globally valid sustainability principles
DJE is one of the signatories of the United Nations' "Principles for Responsible Investment" (UNPRI). Since 2018, the entire range of funds and asset management has been directed towards the compliance with overarching sustainability criteria such as environmental protection and respect for human rights and labour standards – we have firmly anchored these criteria in our investment process and follow them out of conviction. An important leverage for fundamentally oriented investors such as DJE is to raise the issue of ESG weaknesses towards high-ranking company representatives. This engagement can have a much more direct impact on change in companies than, for example, the application of exclusion criteria.
DJE with green business card
With the DWS Concept DJE Responsible Invest we go much further: it is a mixed fund focusing on shares and bonds of sustainable companies, so-called green stocks. Companies are considered sustainable if they have a positive influence on society through products, processes or special commitment. Furthermore, the fund may only invest in companies whose CO2 emissions are within very strict limits. This CO2 filter is considered one of the strictest in the field of sustainability funds and is reflected in a very low CO2 footprint at fund level. Green bonds are bonds whose income is invested in pre-defined green projects – these may include reforestation projects, the establishment of recycling circuits or the improvement of drinking water treatment. This makes the fund one of the most sustainable in the fund industry.
The DWS Concept DJE Responsible Invest has a 5-star rating from Morningstar. In addition, the fund is among the top one percent in its peer group in the MSCI ESG Quality Score.
Note: All information published is for your information only and does not constitute investment advice or other recommendation. Long-term experience and awards do not guarantee investment success. Securities are subject to market-related price fluctuations which may not be compensated for by the active management of the asset manager or investment advisor. This information cannot replace a consultation. All information has been provided with care and to the best of our knowledge at the time of preparation. Despite all due care, the data may have changed in the meantime. Further information on opportunities and risks can be found on the website www.dje.de. The sales prospectus and further information are available free of charge in German from DJE Investment S.A. or at www.dje.de The fund management company is DJE Investment S.A. DJE Kapital AG is the distribution agent.