Published: January 01, 2020
DWS is already known as a world-class asset manager of money market funds (MMFs). Now, the firm is leading the way in bringing environmental, social and governance (ESG) criteria into money market strategies – making it a worthy winner of TMI’s 2019 Award for Best MMF Innovation. Dr Asoka Woehrmann, CEO and Chairman of the Executive Board, DWS Group, and Reyer Kooy, Head of Institutional Liquidity Management EMEA & Asia, DWS, explain why ESG is such an important focus for DWS and how corporate treasurers can benefit from the firm’s expertise in this area.
Assets in environmental, social and governance (ESG) money market funds (MMFs) grew by 15% in first half of 2019[1]. These funds are predicted to become more popular[2] as corporates increasingly look for sustainable investment vehicles in which to park their excess cash.
“Although ESG is the zeitgeist, it would be a mistake to think that it is a fad that will disappear,” says Kooy. “It would also be wrong to assume that asset managers are jumping on the bandwagon with their ESG offerings. DWS has long recognised the importance of ESG for investors and was among the first signatories of the United Nations-backed Principles for Responsible Investment [PRI] in 2008,” he notes.
Woehrmann agrees: “We have been providing responsible investment strategies for more than 20 years. Now we want to make ESG the core of everything we do.” As such, ESG lies at the heart of DWS’ strategy – for today and tomorrow. “We want to continue to develop and establish innovative ESG products in the future, because here at DWS sustainability is not just a passing trend, but rather a question of long-term, responsible conduct. For us it is a central guiding principle and also gives us the opportunity to distinguish ourselves from the competition,” says Woehrmann.
Competitive innovation is precisely what DWS has achieved with its Proprietary ESG Engine. In essence, the ESG Engine is a data consolidation, aggregation and mining platform, which allows objective ESG-analysis. “It has become the centrepiece of our commitment to integrating ESG into our investment process, which enables us to identify investments that contribute to the UN Sustainable Development Goals [SDGs]. In 2019, we began integrating climate transition risk and physical climate risk data into the investment process via our Proprietary ESG Engine,” Kooy explains.
Using this highly sophisticated engine, DWS has been able to lead the way in bringing ESG to money market strategies, globally. DWS launched the very first USD-dedicated ESG MMF in 2018: the DWS ESG Liquidity Fund (ESGXX). The fund offers investors the opportunity to gain best-in-class ESG exposure for their liquidity needs and helps them invest in a sustainable future.
In Europe, more recent innovation by the firm has seen two of DWS’ existing short-duration funds repurposed into ESG MMFs, namely the DWS Institutional ESG Euro Money Market Fund and DWS Institutional ESG USD Money Market Fund. Another fund, the DWS Euro Money Market Fund, will convert to an ESG fund in the spring of 2020.
This kind of innovation truly differentiates DWS from the pack. Kooy explains: “While some of our competitors add ESG funds as a complement or adjunct to their existing ranges, DWS is instead transforming our core product capabilities to be fully ESG-compliant. In this way, DWS will offer clients only responsible investments – because it’s the right thing to do. So, we are converting our platform step-by-step into an ESG MMF platform.”
As for investors, ESG funds might come at a slight cost today – but this is more than likely to be offset by benefits down the road. Kooy comments: “For now, at least, marginal sacrifices in investment yield may be associated by making the ESG choice in MMFs. Nevertheless, we see more investors being prepared to make that compromise and hope more will be prepared to do so in the future. In time, particularly in Europe, regulation will mandate that all funds incorporate ESG factors through new directives and regulation. As such, investing in ESG MMFs sooner rather than later is a good example of how treasurers can build familiarity with this investment theme within their organisations.
In summary, DWS is already well on the way towards holistically repurposing its platform to put ESG at its core – and, according to Kooy, will “stay the course to maintain our leadership in this space, and provide innovative ESG solutions for our clients”.
As an early pioneer, he adds: “DWS has been running money market strategies globally for over 40 years. We are pleased to receive this TMI Award in recognition of how we are integrating our long-running and unique ESG capabilities into our MMF range.”
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