On Jun. 23, BMW, BlackRock, Deutsche Börse and Qontigo participated in a webinar to discuss the rapid growth of sustainable investing and of ESG practices in Germany, Europe’s largest economy.
The online event, entitled ‘Germany at the Sustainability Turning Point’ and organized by BlackRock, provided a stage to hear how various participants in the financial market and the economy are stepping up to meet increasing regulation and public demand around responsible policies.
Deutsche Börse: Germany as a role model for ESG transformation
Dr. Nicolaus Heinen, Head of ESG Strategy at Deutsche Börse Group, kicked off the discussion with his view on Germany being at the forefront of global ESG developments. Thanks to its experience with, and penetration of, ESG products, and the drivers of European regulation and national political ambition, Germany has become a global showcase for the transition to a sustainable economy, he said.
Heinen said that Germany has the tools to master the ESG transformation due to its federal political structure, a solid base of SMEs, and its world-renowned social partnership that has successfully underpinned economic transitions in the past. To this end, Heinen added, the DAX ESG Target Index appears as an attractive index to gain exposure to the country’s ESG evolution.
BMW: sustainability must be deeply integrated into processes
Representing the corporate sector, Dr. Thomas Becker, Vice President of Sustainability & Mobility at BMW Group, provided an insight into how ESG targets are impacting the carmaker’s operations and products. According to Becker, sustainability cannot be an add-on to a company’s strategy, but must rather be deeply integrated into processes, and ESG objectives should become part of a company’s performance measurement. This integrated thinking on sustainability was reflected in the BMW Group Integrated Report for 2020, the first one of such kind among the premium Original Equipment Manufacturer (OEM) car companies.
Becker walked the audience through the carmaker’s plan to reduce carbon emissions across the entire value chain by more than a third, in total, through 2030. These targets, which are aligned with the Science-Based Targets initiative, require BMW’s own production to be carbon-neutral — but that is actually the easiest part, the executive explained. BMW’s production only accounts for a very small part of its carbon footprint, while the lion’s share of emissions is generated by supply chain and logistics, energy supply, and the cars’ so-called use phase, i.e. the time period during which the vehicle is being driven.
Considering that BMW has thousands of contractors, decarbonizing its supply chain is no simple feat. In particular, Becker noted the importance of BMW’s ‘circularity’ programs, under which the company reduces primary material consumption in favor of recycled steel, plastic and aluminum.
While the drive towards more sustainability is picking up speed, much of the action is still work-in-progress and needs clarification, Becker concluded.
Green version of DAX helps investors transition to sustainability
Next up, BlackRock’s Victoria Arnold, responsible for ETF institutional sales to German pensions and local ESG expert, highlighted how the world’s largest asset manager has placed sustainability at the heart of its investment approach. With a focus on German investments, BlackRock has recently introduced the iShares DAX ESG UCITS ETF as part of its commitment to offer attractive ESG investment solutions.
The iShares ETF replicates the DAX® ESG Target Index, which was launched by Qontigo this year and aims to provide an optimized ESG score and low-carbon alternative to Germany’s flagship DAX®. The iShares DAX ESG UCITS ETF is compliant with Article 8 of the Sustainable Finance Disclosures Regulation (SFDR) and with the BVI German Investment Funds Association’s guidelines, Arnold noted, an important point for investors seeking to align their portfolios with recognized ESG principles.
Veronika Kylburg, Associate Principal for Product R&D, Benchmark Indices, at Qontigo, dived deeper into the DAX ESG Target Index and explained that the DAX ESG Target Index first undergoes exclusionary screens for global standards, controversial weapons, tobacco, thermal coal, military contracting, small arms, nuclear power and oil sands. Removed stocks are replaced by the largest stocks in the broader HDAX® index that also have the highest ESG scores. An optimization weighting process is then applied that considers virtually all combinations of stock weights to maximize the portfolio’s ESG profile and reduce its carbon emission, all while limiting the active risk.
Kylburg highlighted how, as expected, the ESG index has provided both a higher ESG score and a lower carbon footprint in recent years relative to the DAX. A more surprising point is that the ESG has also outperformed the benchmark since 2012, supporting the thesis that responsible corporate management can yield enhanced returns.
Sustainability journey to get more demanding
ESG action will only intensify in coming years, and many investors will need to incorporate a growing bundle of sustainability considerations into their decision processes. As the webinar showed, a vast array of actors, from companies to asset managers, are adapting their operations and services to join the transition to a more sustainable marketplace and economy. In this sense, the event was a great opportunity to hear their different and insightful perspectives.