DWS pioneers unique approach to ESG integration

DWS, one of the world's leading asset managers, has announced that it will strengthen its stewardship practices by introducing “Smart Integration”, a pioneering approach to ESG integration that goes beyond previous industry standards.

Developed before Covid-19, it is expected to become even more important as the pandemic’s fallout reinforces the need to build back our economy in a responsible and sustainable manner, the firm said in a press release. As an initial step, the new process will apply to approximately a fifth of DWS’ total global Assets under Management (AuM), which stood at EUR700 billion as of Q1 2020, targeting non-ESG focused funds in particular. “Smart Integration” will in the course of year be further rolled out to ensure greater ESG integration across the broader investment platform of DWS.

Engagement as our most powerful fiduciary tool

DWS will use its proprietary ESG Engine to leverage best-in-class research data and artificial intelligence to identify potential portfolio risks, primarily companies with high climate transition risks and those that violate international norms. Using this analysis empowers DWS to act proactively and engage companies with the highest risk exposure, not only to help clients build more responsible investment portfolios, but to also ensure that the firm is fulfilling its responsibility to contribute towards a more sustainable economy, society and environment for the future.

Asoka Woehrmann, CEO, DWS, said: “The dialogue with companies on corporate strategy – engagement – is the most powerful tool we have as a fiduciary asset manager to make a positive impact on ESG practices. I am proud that with the introduction of “Smart Integration” DWS has set up an own overarching taxonomy to apply its influence. This is a major step forward towards becoming an ESG leader in our industry.”

Adopting a more sophisticated approach to ESG integration

The sophisticated approach of “Smart Integration” raises the bar for higher sustainability standards in investment management as well as companies that DWS invests in, marking significant progress from the top-down sector exclusions approach. 

In practice, DWS analysts and portfolio managers will apply “Smart Integration” through a process centered on robust research, professional expertise and strong engagement:

  • Utilising the ESG Engine to identify, and objectively analyze issuers in all sectors with high climate transition risks and violators of international sustainability standards
  • Ranking the identified companies by highest risk exposure, instead of excluding entire sectors
  • Incorporating such risk analysis on these companies into investment decisions advised by internal experts
  • Engaging with high-risk companies as advised by internal experts, including regular dialogue with companies’ senior management to influence action for improvement
  • Excluding companies from the DWS investment universe as a last resort if they fail to act 

“Smart Integration” will initially be implemented for actively managed mutual funds in liquid investment strategies domiciled in EMEA. Avoiding companies with excessive climate transition risk may lead to lower carbon intensity in DWS’s Active investment platform as well as better risk adjusted returns for investors. This is because severe ESG risk takers tend to be associated with a higher likelihood for significant adverse consequences on their financial position or reputation.