Environmental, social and governance (ESG) investment factors are increasingly gaining the attention of asset owners and managers, creating a unique marketplace of responsible investors within the broader financial services industry.
"The problem is, this is an easy label to attach to yourself, but practically doing it is incredibly difficult," says Michael Lewis, spokesperson for Deutsche Asset Management.
Deutsche Asset Management is one of the original firms to have worked with ESG factors. It began with governance (G) activities back in 1993, then added social finance and microfinance (S) in 1997 and then it concluded with climate research (E) in 2007.
"ESG is not something new to us, we're just putting more and more resources in that," Lewis explains. "For example, we set up a leadership platform at the beginning of 2017, and we brought together all these different activities under one roof." The firm also appointed its first chief investment officer for responsible investment to strengthen its ESG framework.
One of the firm's biggest projects is to measure and incorporate different levels of risk from an ESG perspective.
"At the moment, the environmental and climate risk has captured a lot of attention in the investment community, because it is seen as a very visible and high- risk scenario and linking that to the financial performance is deemed important," Lewis says.
That's why Deutsche Asset Management is working on two big goals that it hopes to meet within the next 12 months. First, the release of new physical climate risk indices, where investors would know whether companies and their equities are resilient to climate change.
Second, to help clients meet their sustainable development goals. "A lot of asset owners want to not only measure the financial return but also to look at what is the environmental or social return or outcomes of their investments," Lewis explains. "Historically we had products that have supported these goals, but they had been very small; we will now expand it to big asset owners."