Responsible investment: an element of portfolio optimization
ESG stands for "Environment, Social and Governance". When implementing these sustainability aspects, we at Metzler Asset Management GmbH take exclusion criteria, ESG integration, dialogues, proxy voting rights and ESG controlling and reporting into consideration.
In addition to purely financial criteria, Metzler Asset Management GmbH's investment process also takes into account how companies handle ecological, social and corporate governance aspects. A broader data basis is intended to improve targeted selection of securities and thus the risk/return profile of the portfolios (not guaranteed or warranted).
Exclusion criteria based on 120 norms and conventions are used for all equity and corporate bond funds. The data comes primarily from MSCI ESG Research. In the event of "very severe controversies", i.e. the most serious breaches of one or more of these norms, we exclude the company in question from the investment universe.
At the client's request, we include additional criteria in the investment process, for example based on data from ISS-ESG.
ESG integration aims to improve the risk/return profile of funds by incorporating key sustainability aspects into traditional investment analysis. For example, we quantify in economic terms how the following aspects affect business success:
- ESG scores from MSCI ESG Research
- Sector-specific key performance indicators (KPIs)
- ESG aspects of corporate business models
Metzler Asset Management GmbH has entered an agreement with BMO Global Asset Management (BMO) to handle dialogue and voting rights. BMO and the portfolio managers at Metzler address business-relevant ESG challenges in their discussions with companies. BMO also exercises proxy voting rights. BMO prepares reports on these activities and the milestones achieved, some of which we incorporate into ESG reporting for our clients.
Information on proxy voting activity:
We continuously improve ESG integration by means of ESG controlling. In addition, Metzler Asset Management has been offering comprehensive ESG reporting since January 2018 based on the most important key indicators (KPIs) and broader sustainability approaches, greenhouse gas emissions, the most serious breaches of international norms and conventions, as well as dialogues and proxy voting activity.
ESG reporting on Metzler Asset Management's mutual funds can be found under Fund Prices & Documents.
Sustainability has played an important role at Metzler Asset Management for more than 20 years. Since 2016, we have been fully integrating ESG aspects for all fundamental and discretionary funds in order to further enhance the risk-return profile of the funds (not guaranteed or warranted). Due to classification according to Article 8 of the EU Disclosure Regulation, investors can rest assured that sustainability risks are sufficiently taken into account as part of portfolio and risk management. This also enables forward-looking investing based on investment strategies that are already geared towards the ESG target market and in line with MiFID II.
In order to make this visible to the outside world, numerous Metzler funds now bear the term "sustainability" in their names.
The sustainability aspects integrated in these funds refer to the so-called ESG factors: environmental, social and governance. The securities and investment shares held by these funds must be selected in accordance with the principles of sustainability and are classified based on the sustainability criteria defined by the company. Analyses, assessments, data and/or other information from external service providers can be taken into account.
Depending on this classification, certain issuers are included in the fund's investment universe – or excluded from it if there have been violations of the sustainability principles. The data sources currently used are research results from MSCI ESG Research and/or our own assessments.
ESG integration and exclusion criteria for companies
As part of a holistic ESG approach, sustainability aspects are taken into consideration in an ESG process in order to reduce company-specific risks (e.g. reputational risks) and identify opportunities (e.g. from climate change). Investments are made only in companies that are considered sustainable according to specified criteria. Companies are excluded if they ...
- Have committed a very serious violation of international standards, e.g. principles of the UN Global Compact
- Produce and/or distribute outlawed and/or controversial weapons
- Have a high share of sales in
– Power generation from thermal coal or coal mining
– Extraction of crude oil and natural gas using non-conventional methods (e.g. fracking)
– Production or trade of tobacco products
– Production or trade of military equipment.
Ecological and social factors as well as aspects of good corporate governance
The ESG integration process systematically takes several environmental and social indicators into account – in addition to the information used to assess corporate governance. These indicators include, for example, compliance with the principles of the UN Global Compact, the responsible use of labor, sales generated using climate-friendly technologies, and the structure and quality of the company’s Supervisory Board. In addition, there is regular active dialog with companies on environmental and social topics.
Consideration of all these criteria allows us to select issuers with good management of environmental and social topics and with business models that can be classified as sustainable in the long term and in line with the aforementioned ESG criteria. ESG reports with transparent information on environmental and social portfolio indicators are available for all sustainability mutual funds and can be found at www.metzler.com/asset-management under the heading "Fund Prices & Documents". These reports also include a comparison with a reference index and show the development of the respective portfolio over time.
ESG integration and exclusion criteria for countries
As part of a holistic ESG approach, sustainability aspects are taken into consideration in order to reduce risks and identify opportunities. Investments are made only in countries that are considered sustainable according to specified criteria. Criteria for exclusion include:
a) Management of ESG risk factors based on ESG ratings for countries
b) Access to political rights and civil liberties
c) Extent of corruption
d) Peace status
e) Frequency of money laundering cases.
Information on the methods for assessing, measuring and monitoring environmental and social aspects, on the impact of sustainable investments, on the data sources and criteria for assessment, and on sustainability indicators for measuring environmental and social aspects can be found in the ESG Policy of Metzler Asset Management GmbH.
QbrickS: Integrating sustainability into your portfolio
For 20 years, our asset management approach has been implementing sustainability aspects into individual portfolios on a modular basis. We have now enhanced this approach further in line with changing conditions.
With QbrickS, we offer our clients a integrated concept that includes tailor-made advisory services, customized implementation and comprehensive reporting. We meet our clients’ most diverse requirements – whether shaped by certain values, economic parameters or regulatory restrictions.
ESG reporting enhances portfolio transparency
More and more institutional investors are looking for sustainable investment solutions, and at the same time, legal regulations are becoming more comprehensive (e.g. CSR Directive, EbAV II). This increases the need for and demands on ESG reporting for capital investments.
In January of 2018, Metzler Asset Management began offering reporting that meets these requirements and includes key sustainability aspects. ESG evaluations are prepared for a variety of asset classes including equities, corporate bonds and government bonds, i.e. for all of Metzler Asset Management's actively managed mutual funds, but also for special funds upon client request, and at Master KVG level.
ESG reports are updated monthly and provide investors with the desired transparency as to the sustainability of their investments:
- Evaluations based on significant ESG risks and opportunities (e.g. from MSCI ESG Research)
- Evaluations based on broad ESG assessments (e.g. from ISS-ESG)
- Analysis of a portfolio's carbon footprint
- Analysis of controversies at the various ESG data providers
- Evaltation engagement (company dialogues and voting)
ESG reporting on Metzler Asset Management's mutual funds can be found under Fund Prices & Documents.
Associations and cooperations
Metzler Asset Management GmbH is an active member of various associations in the area of sustainability. In connection with several cooperation agreements and initiatives, we also engage in regular exchange on topics relating to sustainable investments. Learn more about our commitments and memberships below.
- Bundesverband Investment und Asset Management (BVI): The team at Metzler Asset Management GmbH exchanges views on ESG issues regularly with other members of the Bundesverband's ESG working group. This includes integrating the guidelines on responsible investing into the BVI's rules of conduct.
- CRIC e. V.: Metzler Asset Management GmbH has been a full member of CRIC e.V. since August 1, 2018. The association's main areas of activity include engagement, research and awareness raising for sustainable investments in society, politics and business.
- Forum Nachhaltige Geldanlage (FNG): Metzler Asset Management GmbH has been a member of the FNG since 2002. The aim is to raise awareness of sustainable investment solutions and thereby trigger a positive steering effect for investments.
- BMO Global Asset Management: Metzler Asset Management GmbH has been working with BMO Global Asset Management since 2014 on the topic of "Dialogues and voting rights".
- ISS ESG: Metzler Asset Management GmbH has been working with ISS-ESG since 1999 for customer-specific ethical or sustainable exclusion criteria and/or "best in class" approaches for managing special funds.
- MSCI ESG Research: Since 2016, Metzler Asset Management GmbH has been obtaining data for ESG integration and for analyzing "very severe controversies" primarily from MSCI ESG Research.
- Sustainability initiative "Accelerating Sustainable Finance": Deutsche Börse AG has launched the sustainability initiative "Accelerating Sustainable Finance" together with other key players in the financial center of Frankfurt/Main, Germany. Emmerich Müller, personally liable partner at Metzler Bank, signed the "Frankfurt Declaration" for the family owned private bank on February 5, 2018. In this declaration, the signatories expressed their joint intention to create sustainable infrastructures in the financial sector. The players in the Frankfurt Sustainability Initiative have set themselves the goal of achieving important milestones in terms of sustainability based on their own core businesses. An additional aim is to define the framework conditions for a sustainable financial industry and launch appropriate initiatives in Frankfurt.
- Principles for Responsible Investment (PRI): In 2012, Metzler Asset Management GmbH was one of the first German asset managers to sign the Principles for Responsible Investment (PRI), which were established in 2005 on the initiative of the United Nations as a voluntary commitment by the signatories. More than 1,400 members from over 50 countries have now joined the initiative - with a total investment capital of around USD 59 trillion.
- Task Force on Climate-Related Financial Disclosures (TCFD): The TCFD, founded by the Financial Stability Board (FSB), promotes the disclosure of climate-related information and data from companies. The companies are required to analyze and assess the opportunities and risks arising from climate change. The additional information is intended to help investors to make informed decisions. As a supporter of the TCFD, Metzler Asset Management advocates greater transparency in climate reporting.
Detailed information on the TCFD and a list of official supporters can be found at www.fsb-tcfd.org
A comprehensive description of TCFD recommendations can be found in the TCFD recommendations report.
Your contacts in the Sustainable Investment Office
Metzler Asset Management GmbH concentrates its sustainability activities in the Sustainable Investment Office (SIO) under the management of Jan Rabe and Daniel Sailer with the aim of efficiently implementing and further developing its ESG strategy. Expert know-how in ESG research, asset management, ESG reporting and for tailor-made advisory services is bundled in the SIO.