Sustainability Disclosures

 

DBTCA - Deutsche Bank Trust Company Americas (applicable solely to Germany-domiciled Discretionary Portfolio Management Clients)

 

Introduction

 

The Sustainable Finance Disclosure Regulation (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.

 

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 authorized 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 authorized 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 authorized in accordance with Directive 2009/65/EC which has not designated a management company authorized 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 authorized 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 labor 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 authorized 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: Transparency of sustainability risk policies for financial market participants for Deutsche Bank Trust Company Americas (applicable solely to Germany-domiciled Discretionary Portfolio Management clients), March 2021

Introduction / Summary

On March 10, 2021 the Regulation (EU) 2019/2088 of November 27, 2019 on sustainability-related disclosures in the financial sector (Disclosure Regulation) has entered into force. This regulation aims to support sustainable investments by requiring Financial Market Participants (FMPs) and Financial Advisers (FAs) to disclose information regarding sustainability risks to investors and clients.

 

Article 3 of this regulation requires information to be shared with regards to the integration of sustainability risks within the investment decision-making process. The approach taken by DBTCA is further detailed below.

 

DBTCA applies an overarching approach to the management of sustainability that is set out in a number of group level policies and procedures. The group-wide Sustainability Policy delineates our 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, provides relevant context regarding DBTCA's view on sustainability topics.

 

While DBTCA does not currently apply an overarching formal policy regarding the integration of sustainability risks in the investment decision-making process, DBTCA still takes sustainability risks into account, as further described in the following sections. In addition, business areas are working towards inclusion of the integration of sustainability risks within relevant policies and guidelines. These will be further enhanced on an ongoing basis as more sustainability related data becomes available over time.

 

Definition of sustainability risks

Regulation (EU) 2019/2088 of the European Parliament (the “Regulation”) defines a “sustainability risk” as “an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of the investment”. Sustainability risks may occur both separately and cumulatively, may affect individual companies as well as entire sectors or regions and may have very different characteristics.

 

The following are examples of sustainability risks:

  • As a result of the occurrence of extreme weather events as a consequence of climate change (known as physical risks), 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 as a consequence of climate change, such as long periods of water shortages during drought, can impair or make impossible the transport of goods.
  • There are also risks in connection with the changeover to a low-carbon economy (known as transition risks): 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 plants. New technologies can displace familiar technologies (e.g. 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 counter measures (by adjusting their business model, for example).
  • A substantial increase in physical risks would require a more abrupt changeover in the economy, which in turn would lead to higher transition risks.
  • Social risks arise from aspects such as non-compliance with labor law standards (for example, child labor and forced labor) and compliance with changing occupational health and safety regulations.
  • Examples of risks that arise within the scope of corporate management due to inadequate corporate gover­nance are failures to act in accordance with applicable laws that can lead to criminal penalties and/or high fines, such as tax evasion and anti-corruption laws.

 

Sustainability risks affect the following traditional risks of investments in securities in particular, and if they occur can have a significantly negative effect on investment performance:

 

·       Sector risk

·       Price change risk

·       Issuer/Credit risk

·       Dividend risk

·       Liquidity risk

·       Currency risk

Method of incorporating sustainability risks for Financial Markets Participants:

DBTCA takes sustainability risks into account within the scope of discretionary portfolio management in the following manner:

 

In order to evaluate sustainability risks, DBTCA uses information provided by external service providers that specialize in the qualitative evaluation of environmental, social and governance (ESG) factors. These factors are considered during the construction of investment strategies and security lists available for selection by DBTCA portfolio managers.

 

Because sustainability risks can have different effects on individual companies, sectors, investment regions, currencies and investment classes (for example, equities or bonds), when managing investment portfolios DBTCA reduces the effects of the occurrence of sustainability risks at the portfolio level by diversifying the portfolio’s investments and asset allocations. 

 

1.2 Adverse sustainability impacts statement

1.2.1 Financial Market Participant

Financial market participant adverse sustainability impacts statement for Deutsche Bank Trust Company Americas (applicable solely to Germany-domiciled Discretionary Portfolio Management clients), March 2021

Introduction / Summary 

On March 10, 2021 the Regulation (EU) 2019/2088 of November 27, 2019 on sustainability-related disclosures in the financial sector (Disclosure Regulation) has entered into force. This regulation aims to support sustainable investments by requiring Financial Market Participants (FMPs) and Financial Advisers (FAs) to disclose information regarding sustainability risks and adverse sustainability impacts to investors and clients.

 

This is the adverse sustainability impacts statement for DBTCA in our capacity as Financial Market Participant, to disclose DBTCA’s approach to the consideration of principal adverse impacts of investment decisions on sustainability factors. Principal adverse impacts on sustainability factors are referred to in Article 4 of the Disclosure Regulation. They are further defined in implementing legislation, which at the time of publication of this statement has not entered into force, but are meant to cover negative effects of investments regarded as material from a sustainability perspective. This statement is made for all financial products as defined by the Disclosure Regulation (portfolio management, alternative investment fund (AIF), insurance-based investment products (IBIP), a pension product, a pension scheme, an undertaking for collective investments in transferable securities (UCITS), pan-European personal pension product (PEPP)[2]).

 

As of March 10, 2021, DBTCA considers principal adverse impacts (PAIs) of its investment decisions on sustainability factors, as described in more detail in the full statement below, and will disclose the extent of these impacts in future statements.

 

As described in the full statement below, although there currently is no formal policy to this effect, DBTCA will take four specific impacts into account in relevant investment decisions. For this purpose, factors relating to the aforementioned principal adverse impacts will be made transparent against the investment universe. The consideration of these adverse impacts will be an additional factor for review in making investment decisions, but will not automatically outweigh other relevant factors. DBTCA does not engage directly with investee companies and so does not influence business activity or risks, and follows certain internationally recognized principles for sustainable business and banking conduct, as specified in the full statement below.

Description of policies to identify and prioritize principal adverse sustainability impacts

DBTCA applies an overarching approach to the management of sustainability, which is set out in a number of group level policies and procedures. The group-wide Sustainability Policy delineates our 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 sustainable finance.

 

While currently DBTCA does not apply environmental or social restrictions in the context of the financial products in scope of the Disclosure Regulation, the group level Sustainability policies, relevant Risk Frameworks and broader commitments provide relevant context regarding DBTCA’s view on these topics. And so although there is no formal policy to this effect, DBTCA will still take certain principal adverse impacts into account, as further described in the following sections.

Description of principal adverse sustainability impacts

The principal adverse impacts, including the identification, prioritization and any designated action to be taken to manage exposure to these, will be reviewed by DBTCA wide governance forums on an annual basis in accordance with the DBTCA Policy Framework.

 

The Principal Adverse Impacts that DBTCA will take into account this reference period are:

  • Exposure to Fossil Fuels
    Industries that derive revenues from the exploration, mining, extraction, distribution or refining of hard, liquid or gaseous fuels (i.e. coal, oil, natural gas)
  • Carbon emissions
    The level of carbon dioxide equivalent that is released by a company, measured in volume and intensity
  • Compliance with United Nations Global Compact principles
    Observing that companies at a minimum meet fundamental responsibilities in the areas of human rights, labor, environment and anti-corruption.
  • Exposure to controversial weapons
    Industries that derive revenues from the manufacture or selling of controversial weapons (i.e. anti-personnel landmines, cluster munitions, chemical, biological, radiological and nuclear weapons)

 

Description of actions to address principal adverse sustainability impacts

From March 10, 2021, DBTCA will make factors relating to the aforementioned principal adverse impacts transparent against the investment universe, enabling informed decisions in the selection process for construction of relevant financial products.

 

The focus will be on making the data available within the processes for selection of underlying products for our managed funds and portfolios. As a fiduciary, it is of the utmost importance that we make all investment decisions in the best interest of the clients, considering all financial and risk factors. Therefore, the consideration of these adverse impacts will be an additional factor for review by our portfolio managers in making investment decisions, but will not automatically outweigh other relevant factors.

 

To support with obtaining required details, and monitoring our investable product universe, DBTCA  partners with third party data providers to include information on the business involvements and controversies across the universe on a monthly basis.

Engagement policies

Where DBTCA acts as Financial Market Participant for financial products in scope of the Disclosure Regulation, it does not engage directly with investee companies and so does not influence business activity or risks.

 

References to international standards

DBTCA follows internationally recognized principles for sustainable business and banking conduct, such as the 10 principles of the UN Global Compact, the UN Principles for Responsible Investments, the UN Principles for Responsible Banking and the UN Guiding Principles on Business and Human Rights. A full list and further details of the standards adhered to can be found at: www.db.com/cr/en/docs/2021_Deutsche_Bank_selected_memberships.pdf

 

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 DB 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

 

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

DBTCA acts in the capacity of a Financial Market Participant, and may offer financial products in scope of the Disclosure Regulation. Currently DBTCA does not offer to Germany-domiciled clients any products that promote environmental and social characteristics (Article 8).

1.4.2 Products with sustainable investment objective

DBTCA acts in the capacity of a Financial Market Participant, and may offer financial products in scope of the Disclosure Regulation. Currently DBTCA does not offer to Germany-domiciled clients any products that have a sustainable investment objective (Article 9). 

References

1.
https://eur-lex.europa.eu/eli/reg/2019/2088/oj
2.
Not all of these products are currently in scope for DBTCA as a Financial Market Participant.


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