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RESPONSIBLE INVESTING: DEMYSTIFYING THE ESG MYTHS

Roelfien KuijpersHead of Responsible Investments and Strategic Relationships

For institutional use and registered representative use only. Not for public viewing or distribution. Investment products: No bank guarantee I Not FDIC insured I May lose value.

IS ESG ONLY ABOUTDOING GOOD?

For institutional use and registered representative use only. Not for public viewing or distribution. Investment products: no bank guarantee. Not FDIC insured. May lose value. / 3

OR DOES IT DELIVER POTENTIALLYBETTER RISK-ADJUSTED RETURNS?


FOUR QUESTIONS YOU WILL HEAR FROM ESG SKEPTICS

I’m busy, don’t I have time to worry about sustainability later?

Aren’t my fiduciary responsibilities irreconcilable with ESG investing?

Can I just screen my portfolios and be done with it?

How do I know what sustainable topics to care about?

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For institutional use and registered representative use only. Not for public viewing or distribution. Investment products: no bank guarantee. Not FDIC insured. May lose value.

Source: CFA Institute

“The CFA Institute encourages all investment professionals to consider ESG factors, where relevant, as an important part of the analytical and investment decision-making process, regardless of investment style, asset class, or investment approach.”

— January 10, 2019

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ACADEMIC EVIDENCE SUPPORTS THE POSITIVE CONTRIBUTIONSOF ESG FACTORS ON TOTAL FINANCIAL PERFORMANCE


Source: Friede, Busche, Bassen (December 2015). Past performance in not indicative of future results. Grey is neutral.

Positive 58.7% 55.1% 62.3% 35.3%Negative 4.3% 5.1% 9.2% 7.1%

E S G ESG

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THIS IS TRUE IN THE US AND EVEN MORE SO FOREMERGING MARKETS


Source: Friede, Busche, Basset (December 2015). Past performance in not indicative of future results

0

10

20

30

40

50

60

70

North America Developed Europe Australia/NZ Developed (Total) Emerging markets

Positive Negative

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ENVIRONMENTAL RISKS ARE THE TOP 3 GLOBALRISKS OF THE 2019 WEF GLOBAL RISK REPORT


1 World Economic Forum Global Risks Report 20192 World Health Organization, “9 out of 10 people worldwide breathe polluted air, but more countries are taking action”, May 2, 2018

E S G

TOP 5 GLOBAL RISKS IN TERMS OF LIKELIHOOD1

1st Extreme weather events2nd Failure of climate change mitigation & adaptation3rd Natural disasters4th Data fraud or theft5th Cyber-attacks

90% of the world’s population lives with polluted air2

Environmental TechnologicalLos Angeles – Ron Eisenberg/Getty Images

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IT LOOKS INCREASINGLY UNLIKELY THAT THE WORLDWILL MEET THE 2015 PARIS AGREEMENT GOALS


1 International Energy Agency & Bloomberg, https://www.bloomberg.com/news/articles/2019-03-26/record-carbon-emissions-seen-as-energy-use-grew-most-in-decade2 UN Intergovernmental Panel on Climate Change, 2018 Special Report, “Global Warming of 1.5oC”

Holding global warming to 1.5oC requires:2

_ Attaining net zero global CO2 emissionsby 2050

_ Doubling investments in low-carbon energy technologies and energy efficiency in the next 20 years

E S G

Global CO2 emissions rose to a record high in 2018

mainly due to fossil fuels.1

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INCREASING CONCERN ON WALL STREET ABOUTTHE LONG-TERM SUSTAINABILITY OF CAPITALISM


E S G

Source: Financial Times, “Why American CEOs are worried about capitalism”, April 22, 2019

Jamie DimonChairman & CEO, JP Morgan Chase

“I’m a capitalist, and even I think capitalism is broken.”

Ray DalioCo-Chairman & Co-CIO, Bridgewater

“We should spend more [on] infrastructure and education funding. And that may very well mean taxing the wealthy more.”

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THE 10 WEALTHIEST PEOPLE GLOBALLY HOLD MORE WEALTH THAN THE POOREST HALF OF THE WORLD’S POPULATION (3.6 BILLION PEOPLE)2


1 2007 Human Development Report (HDR), United Nations Development Program, November 27, 2007, p.252 Forbes, https://www.forbes.com/billionaires/ 2018

E S G

More than 80% of the

countries where income

world’s population lives in

differentials are widening1

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► Deepwater Horizon disaster currently stands at $65bn. Its share price fell 30% in 2010 following the disaster.

► Dieselgate costs reached $35bn in late 2018. Its share price fell 30% in 2015.

CORPORATE GOVERNANCE: ENVIRONMENTALFAILURES HAVE COST INVESTORS BILLIONSE S G

Deepwater Horizon – US Coast Guard

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ESG INVESTING OFFERS A WIDE SPECTRUM


https://www.morganstanley.com/content/dam/msdotcom/en/assets/pdfs/Morgan_Stanley_ISI_Sustainable_Signals.pdf; EFFAS The European Federation of Financial Analysts Societies; PRI Reporting Framework, 2013 Main Definitions

Exclusionary Screening

Active Shareholder

Environmental, Social and

Governance (ESG)Integration

Best-in-class Sustainability-themed

Impact Investing

Philanthropy / Pure socio-environmental valueTraditional / Pure financial value

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ALIGNING PORTFOLIOS WITH CLIENTS VALUES AND BELIEFS


Source: DWS (April 2018)

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OUR BELIEFS AND KNOWLEDGE WILL EVOLVE OVER TIME


Source: DWS (September 2018)

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THE COMPLEXITY OF INCORPORATING CLIMATE RISK INTO FUNDAMENTAL COMPANY ANALYSIS


Source: DWS Group GmbH & Co, September 2018. For illustrative purposes only.

Physical Risks

Heat stress

Wind

Extremeweather events

Flooding

Sea level rise

Drought

Liability Risks

Litigation

Transition Risks

Water risk

Green/brown revenue share

Stranded asset/energytransition risks

Supply Chain Risks

Just-in-Time strategy

Sourcing strategy

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TRANSITION RISK: REVALUATION EVENTS ARE ALREADY UNDERWAY


1 MarketWatch, May 5, 20192 Reuters

In April 2016, an energy company the world’s largest

private sector coal producer files for bankruptcy.

A plant-based meat substitute producer soared

163% in biggest-popping IPO since 20001, while an American food company shares fell 28% after a $15.4bn brand

write-down2

An American automotive and energy company has

a greater market value than another American

multinational automaker,but yet the automotive and

energy company makes virtually no profit.

MATERIALS FOOD AUTOS

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LIABILITY RISK: WHERE THERE IS FINANCIAL LOSS, LAWSUITS TYPICALLY FOLLOW


In January 2018, New York City filed a lawsuit against the five major fossil fuel companies

citing their contributions to global warming

In January 2019, a large, California based utility company files for bankruptcy as a

result of outsized liability costs and lawsuits following the 2017 and 2018 California

wildfires

CBS NewsNew York – Nick Brown/Flickr

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PHYSICAL CLIMATE RISK: WE CAN NOW MAP COMPANIES’ GLOBAL CLIMATE EXPOSURES


Source: Four Twenty Seven, September 2018

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SUPPLY CHAIN RISK: LONG SUPPLY CHAINS AND GLOBALIZATION MEANS THAT EVERYTHING IS CONNECTED



COAL MINERWhere do you begin?

accountancy firmsoftware provider

commodities traderrubber producertire manufacturer

truck maker

shipping lineship builder

steel manufacturercreditor bank

majority shareholderconsultancy

Where do you stop?

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ESG DATA QUALITY HAS IMPROVED, BENEFITTING INVESTORS



True leadersARunner upsBUpper midfieldCLower midfieldDSlow starters ETrue laggardsF

DW

S ES

G E

ngin

e

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DWS TAKES CORPORATE GOVERNANCE VERY SERIOUSLY


Source: DWS (April 2019)

OUR NUMBERS IN 2018

Voted in

10,537meetingsglobally

Out of all thevoted items

15%were voted with an “against” /

“withhold”

95%support for

climate-relatedresolutions

Out of all the executive comp-ensation items

27%were voted with

an “against”

Out of all thevoted directorrelated items

12%were voted withan “against” /

“withhold”

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FOUR QUESTIONS YOU WILL HEAR FROM ESG SKEPTICS


I’m busy, don’t I have time to worry about sustainability later?

Aren’t my fiduciary responsibilities irreconcilable with ESG investing?

Can I just screen my portfolios and be done with it?

How do I know what sustainable topics to care about?

01

02

03

04

DWS’ GROWING SUITE OF ESG SOLUTIONS


Source: DIMA, March 2019. Not all DWS products and services are offered in all jurisdictions and availability is subject to local regulatory restrictions and requirements. Subject to applicable laws and internal policies and procedures.

DWS ESG Solutions and Impact Investments

U.S. Equities ESG(Quantitative; SMA)

DWS QI ESG(Quantitative; Europe, World ex US; SMA)

EM Equities(Fundamental; SMA)

ACTIVE EQUITY

DWS ESG Liquidity Fund(Ticker: ESGXX; also available as SMA)

Ultra-short Fixed Income ESG (SMA)

Investment Grade Credit ESG(SMA, fund launch in progress)

High Yield Credit (SMA)

ACTIVE FIXED INCOME

IMPACT INVESTMENTSChina Clean Energy & Environment Fund

UGEAP (Universal Green Energy Access Program)

Passive Equity with bespoke ESG Overlay(US, World, EM; any market cap sizes; SMA)

Physical Climate Change Risk-Resilient Equities(SMA)

MSCI ESG Leaders USA ETF(Ticker: USSG)

MSCI ESG Leaders EAFE ETF(Ticker: EASG)

MSCI ESG Leaders EM ETF(Ticker: EMSG)

MSCI ESG Leaders ACWI ex US ETF(Ticker: ACSG)

INDEX-BASED EQUITY REAL ASSETS

Liquid Real Assets (SMA)

Real Estate – Portfolio Integration

Passive Fixed Income with bespoke ESG Overlay(Agg, Credit, IG, HY, DM, EM; SMA)

Municipal Bond ESG(SMA)

INDEX-BASED FIXED INCOME

Global Multi-Asset ESG(Conservative, Moderate, Aggressive; SMA)

MULTI-ASSET

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REMEMBER, EVERY INVESTMENT HAS AN IMPACT, POSITIVE OR NEGATIVE!


POLLING QUESTION 1DO YOU CURRENTLY USE ESG STRATEGIES?


POLLING QUESTION 2WHAT IS YOUR PRIMARY MOTIVATION FOR INCORPORATING ESG INTO PORTFOLIOS?

1. CLIENT DEMAND2. INVESTMENT PERFORMANCE3. RISK MITIGATION


POLLING QUESTION 3DO YOU THINK THAT INTEGRATING CLIMATE OR OTHER ESG FACTORS INTO PORTFOLIO CONSTRUCTION CONFLICTS WITH FIDUCIARY DUTY?

1. YES2. NO


POLLING QUESTION 4WHERE ARE THE MAJORITY OF YOUR CLIENTS INVESTED ON THE ESG SPECTRUM?

1. INTEGRATION (BEST-IN-CLASS, ESG INTEGRATION)2. EXCLUSION (NEGATIVE SCREENING, NORMS BASED)3. IMPACT INVESTING4. THEMATIC INVESTING5. NONE OF THE ABOVE


POLLING QUESTION 5WHAT COMPONENT OF ESG DO YOU FEEL IS MOST IMPORTANT IN TERMS OF A COMPANY’S PERFORMANCE?

1. ENVIRONMENTAL 2. SOCIAL 3. GOVERNANCE


IMPORTANT INFORMATION

© 2019 DWS Group GmbH & Co. KGaA. All rights reserved. (5/19) 067630_1.0

The brand DWS represents DWS Group GmbH & Co. KGaA and any of its subsidiaries such as DWS Distributors, Inc. which offers investment products or DWS Investment Management Americas Inc. and RREEF America L.L.C. which offer advisory services.

Any forecasts provided herein are based upon DWS’ opinion of the market at this date and are subject to change dependent on the market. Past performance or any prediction, projection or forecast on the economy or markets is not indicative of future performance.

This material was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. It is intended for informational purposes only. It does not constitute investment advice, a recommendation, an offer, solicitation, the basis for any contract to purchase or sell any security or other instrument, or for DWS or its affiliates to enter into or arrange any type of transaction as a consequence of any information contained herein. Neither DWS nor any of its affiliates gives any warranty as to the accuracy, reliability or completeness of information which is contained in this document. The comments, opinions and estimates contained herein are based on or derived from publicly available information from sources that we believe to be reliable. We do not guarantee their accuracy. This material is for informational purposes only and sets forth our views as of this date. The underlying assumptions and these views are subject to change without notice.

This presentation is intended only for the exclusive benefit and use of our clients and prospects. This presentation was prepared in order to illustrate, on a preliminary basis, a specific investment strategy and does not carry any right of publication or disclosure. Neither this presentation nor any of its contents may be used for any other purpose without the prior written consent of DWS.

The information in this presentation reflects prevailing market conditions and our judgment as of this date, which are subject to change. In preparing this presentation, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources. We consider the information in this update to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of composite performance or suitability for investment.

Past performance is not indicative of future results. No representation or warranty is made as to the efficacy of any particular strategy or the actual returns that may be achieved.

As noted in the performance tables and charts included herein, investment management fees have not been deducted. In the event that such investment management fees and other fees were deducted, the performance of an account would be lower. For example, if an account appreciated by 10% a year for five years, the total annualized return for five years prior to deducting fees at the end of the five-year period would be 10%. If total account fees were 0.10% for each of the five years, the total annualized return of the account for five years at the end of the five-year period would be 9.89%. Fees are further described in Part II of the investment adviser firm’s Form ADV.


responsible investing - dws...investment products: nobank guarantee. not fdic insured. may lose...

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