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Our dedicated ESG Thematic Research team analyses relevant ESG topics and publishes reports on the issues and megatrends impacting investment decisions, such as climate change, renewable energy, water sustainability, corporate governance and social and labour practices. The team also partners with leading academics and sustainable finance experts, as well as participating in industry working groups and providing input to policymakers in cooperation with Deutsche Asset Management’s investment specialists as it relates to ESG.

A robust ESG thematic research capability is an essential element in increasing the awareness of controversial ESG issues that are relevant for our client base and investment professionals. With in-depth analysis our clients are therefore better placed to make a decision on how they treat certain controversial sectors as well as identify potential investment risks and opportunities. Last but not least, we leverage the knowledge of our sector analysts across equities and fixed income for ESG integration related issues.

Financial markets are having to contend with rapid technological change and the increasing scope and pace of ESG regulation with the consequent implications for investment returns. The following research snapshots provide a flavour of some of the sectors and asset classes we believe hold significant ESG risks and/or opportunities.

 

Providing

thematic research

to increase the awarness of controversial ESG issues

"Our task is to support our clients and investment teams to understand and consider major sustainability risks and opportunities in their everyday business. In addition, we collaborate with clients and stakeholders to help develop solutions to environmental and social challenges. In this way we can protect and grow our clients’ investments."

Michael Lewis
Head of ESG Thematic Research

Mega Trends

Research and the financial benefits of responsible investing

 

Number of empirical studies relating to ESG and corporate financial performance over time

Source: Deutsche Asset Management, University of Hamburg (December 2015) ESG and Corporate Financial Performance

Number of empirical studies as a reliable guide

  • There has been a rapid increase in the number of research studies examining the link between ESG and corporate financial performance. The majority of these studies show that incorporating ESG in investment decision making can improve performance and reduce risk
  • The Deutsche Asset Management-University of Hamburg study[1] revealed that companies with high rating for ESG and CFP demonstrate better performance across asset classes, regions, ESG categories, and over time
  • A University of Oxford ESG study[2] investigated over 200 of the highest quality academic studies and found sustainability standards lowered the cost of capital as well as demonstrated better operational and investment performance
 

Evolving asset owner expectations

 

PRI signatories’ by type, number and AuM

Data as of April in each year and reported on the UN PRI website Source: UN PRI 2017
  • The number of PRI signatories has risen 10-fold in the 10 years to 2016[3]
  • Asset owners are becoming increasingly forceful in their objectives and, in many instances, are adopting low carbon commitments
  • Asset owner low carbon commitments typically start by measuring, reporting and then reducing the carbon footprint of their investment portfolios. This has traditionally taken the form of firstly reducing or divesting completely from fossil fuel related companies and specifically coal and then increasing investments in such things as clean technology, green infrastructure and green bonds

 

 
 

Climate & sustainability

 

Climate change is already shifting the probability distribution of our planet’s weather and climate patterns

Source: Columbia University Earth Institute 2016 and New York Times July 2017.
 
 

Active Ownership, engagement & divestment

 

Growing ESG Engagement by European investors

Source: Eurosif (November 2016) European SRI Study 2016
    • Investors are also increasingly engaging with investees and voting at AGMs to improve ESG and low carbon practises. ESG engagement and voting in Europe grew from EUR1.35 trn in 2007 to an estimated EUR 4.3 trn in 2015
    • Asset owners are setting Engagement requirements as it is seen as a core part of Fiduciary Duty. For example, climate proofing portfolios
    • The proportion of environmental and social AGM resolutions continues to grow, driven by climate change and political influence/lobbying resolutions while public health/product safety and worker related resolutions have seen a relative decline
    • Divestment programmes whether at an industry, sector or country level are being accompanied by replacement investment strategies with renewable energy and energy efficiency among the beneficiaries of this investment switch
 

Regulations & stewardship codes

 

The growth in ESG regulation around the world

Source: PRI, MSCI Global Guide To Responsible Investment Regulation (December 2016)
  • ESG related regulation around the world has surged over the past decade¹. The PRI-MSCI database tracks ESG regulation across the largest 50 economies in the world
  • Regulation has typically been voluntary and grouped into four broad themes:
    • Corporate and investor disclosure such as the EU non-financial reporting directive
    • Stewardship codes and laws which encourage asset managers to engage with their investees
    • Regulations aimed specifically at asset owners to incorporate sustainability into their investment decision-making
    • Regulations to shift capital to green and sustainable assets
  • Stewardship Codes are also being adopted globally to promote the sustainable growth of companies through engagement and dialogue
  • In addition, stock exchanges around the world are encouraging sustainability reporting. The aim is to raise corporate transparency, strengthen risk management, promote stakeholder engagement and communication
 

Physical climate risk

Investors have no place to hide when it comes to the effects of physical climate change. This whitepaper provides some of the tools to more accurately monitor and address the physical effects of extreme weather events on investment portfolios.

Download PDF

ESG and financial performance

Aggregated evidence from more than 2000 empirical studies

Read more

The gathering forces of ESG investing explored

We showcase how investors could profit and reduce risks from climate change, global real estate, U.S. renewables, the microfinance sector and the relentless march of ESG regulation.

Read more

1. Deutsche Asset Management, University of Hamburg “ESG and Corporate Financial Performance” (December 2015)

2. University of Oxford and Arabesque Partners March 2015. From the stockholder to the stakeholder, How sustainability can drive financial performance

3. PRI directory (April 2017)

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