Personal-Financial.com: Everyone understands something different by sustainability. What do I get as an investor if I invest sustainably with DJE?
RICHARD SCHMIDT: DJE Invest is one of the signatories of the “Principles for Responsible Investing” of the United Nations (UNPRI). We would like to invest the funds entrusted to us in the companies that most closely match our moral values with their products and management. The entire range of funds and asset management have therefore been geared towards compliance with overarching sustainability criteria such as environmental protection and compliance with human rights and labor standards since 2018.
What does that mean in detail?
In a scoring model, we have made sustainability one of six building blocks. This results in an overall score for the allocation decision at the individual stock level. We rely on a combined process of working with MSCI ESG on the quantitative side and 600 to 900 company meetings per year on the qualitative side. The investment universe is reduced using exclusion criteria. Ultimately, around a hundred stocks make up the core investment.
Sustainability has long been considered a return killer, today investors emphasize the better performance of ESG investments compared to conventional funds. Why are sustainable investment products developing better?
Performance and sustainability often go hand in hand. As an investor, with sustainable companies you usually buy companies with above-average successful and proactive management. In addition, in the next few years it is highly likely that only those companies will be successful in the market that can present a credible and comprehensible sustainability concept. And it’s not just about the products themselves, but also about the suppliers, the way they are produced and the corporate culture.
Has that already reached investors, whether private or institutional?
We see a great preference for products that can be bought with a clear conscience, especially at the moment.
And what do customers ask of you when it comes to sustainable investments?
Our customers demand from us a thorough analysis of the companies in which we participate. This also includes an ESG analysis. For many inquiries, the focus is on Pillar E for Environment and here in particular on carbon dioxide emissions. But we also check the areas of social affairs and governance. So how do companies deal with their employees and what about the company’s internal control mechanisms and the competence of the board of directors and supervisory board? Only when this comprehensive examination and the personal interview lead to a good and coherent result can investments be made.
Are there industries that you do without completely?
We exclude DJE-wide companies from certain industries. This includes weapons manufacturers, for example. In addition, we do not invest in companies that do not adhere to the principles of sustainable investment set out by the United Nations.
And what about the machine builder who supplies a weapons manufacturer?
We have strict guidelines regarding the exclusion of weapons manufacturers. Suppliers, such as machine builders, who generate over 5 percent of their sales by supplying weapons manufacturers, are also excluded. Only with this comprehensive approach can we invest with a clear conscience.
How do you handle it in your sustainability fund DWS Concept DJE Responsible Invest?
For example, we do not include cement or aluminum manufacturers in the fund because their carbon dioxide emissions are many times higher than in other sectors. Overall, with its investments, our fund managed to significantly minimize the carbon dioxide emissions it financed. The fund’s carbon footprint is one of the lowest in the industry. In the bond sector, we rely on so-called green bonds. These are bonds with a very specific sustainability project into which the proceeds flow. We have green bonds in our portfolio to finance solar and wind parks, to increase the recycling rate, to reforest wasteland and to develop more effective lithium-ion batteries.
If all investors acted like this, carbon dioxide emissions would drop rapidly, but there would be neither cement nor aluminum, so neither new railways nor electric cars.
The financing costs for carbon-intensive companies would rise massively and make production uneconomical. This principle is also behind the planned taxonomy of the European Union: The aim is not to penalize carbon-intensive companies directly, but to implement the mechanism of action indirectly via investors and asset managers.
And what about cement and aluminum?
Cement and aluminum production has so far been very carbon dioxide-intensive and thus a major driver of climate change. Our aim is not to let these essential industries dry up, but to get them to introduce modern and gentler production methods. In the case of cement, aluminum and hydrogen, they have long been available, but are more expensive than previous production methods. The pressure and the additional costs caused by sustainability investors offset these cost disadvantages. We are gradually getting innovative manufacturers who we then buy again with a clear conscience. It doesn’t work overnight, but it does so with increasing success and speed.
Conversely, which industries do you consider to be particularly sustainable and are you therefore investing?
We see the fuel cell as an exciting future market. Small manufacturers such as Plug Power or Bloom Energy are in the starting blocks and are already recording strong increases in sales. We also see the associated producers of so-called green hydrogen as a suitable investment. So-called gray hydrogen, which was generated from electricity with an unfavorable carbon dioxide balance, makes no sense in the overall view. The first suppliers are now producing a significant amount of green hydrogen, which is used by fuel cells to drive vehicles or in industrial furnaces.
The two largest single stock positions in your sustainability fund are Apple and Facebook? What do you think makes the two companies so sustainable?
Both companies have their weaknesses in individual areas of their ESG profiles. Nonetheless, both values achieved an overall ESG rating that is well above our minimum requirements. At Apple, we also like the so-called green bonds, the proceeds of which Apple wants to use to increase the recycling rate for iPhones.
And what about BASF, another big position in your fund? When it comes to chemistry, nobody thinks of “green”?
We want to reward sustainability and good business practices: BASF is one of the most sustainable providers in the chemicals sector. The company is not only characterized by relatively low carbon dioxide emissions, but also scores points from our point of view with a high level of innovation in so-called clean tech products, through the systematic reduction and avoidance of toxic waste and in the area of governance through a high proportion of women in management positions a competent and independent supervisory board.