Sustainable banking business: Ensuring future success today
The financial crisis was caused in part by flawed remuneration systems, the pursuit of short-term success, and a failure to take non-financial performance and the expectations of society into account sufficiently. Deutsche Bank is focussing on the concept of sustainability as a means to address those aspects and open up paths towards a future-oriented business strategy.
The banking industry has been under intense public scrutiny since the beginning of the financial crisis. It has become evident that there are undesirable developments that the sector must deal with in a wide variety of ways. That is also true of Deutsche Bank. Public attention is currently centered on legal issues involving “guilt and atonement” as well as the question of what regulatory precautions should be taken in order to prevent the crisis from repeating itself. The banks themselves have also implemented numerous measures in their own interest.
The general principle of sustainability serves Deutsche Bank as an orientation to drawing the right strategic conclusions from the experience gathered during the crisis. Its primary objective is to limit risks and safeguard the future viability of the bank, while at the same time presenting opportunities to tap into new earnings potential at the same time.
Countermeasures after the crisis
Just like every bank, in the aftermath of the financial crisis we asked ourselves what we have to change in order to maintain our “licence to operate” – independent of tougher regulatory requirements. The short-term thinking that dominated the financial markets is undoubtedly top of mind; it was frequently coupled with “tunnel vision,” focussing on quick profit maximization for the players. We took action fast in that area: short-term bonus systems were curtailed and replaced with long-term remuneration schemes.
It would be short-sighted, however, to be content to just implement a strategy geared towards long-term success incentives. On the contrary, we need an overall strategy that links the entrepreneurial mission of companies with the interests of society. For us, that strategy is derived from the principle of sustainable activity that integrates all stakeholder groups. Economic results that are consistent with ecological and social principles are generated in that way. However, the possibility of conflicting objectives – for example between profitability and client requirements on the one hand and the expectations of society on the other – cannot be excluded, and it will not always be possible to resolve them.
As a matter of principle, in line with our new values and convictions we constantly seek methods that are not only legally allowed, but are also right. The fact that there is discretionary latitude in this regard and we cannot rely on a generally accepted system of right and wrong does not make decision-making any easier. But at the same time, the struggle to find sustainable solutions demands and drives innovative approaches with the potential for long-term success.
More momentum for the concept of sustainability
Global developments have ensured that the concept of sustainability has increasingly gained momentum throughout the last few years. Exponential population growth, a continued increase in industrialisation worldwide, ruthless exploitation of natural resources, global warming and a growing disparity of incomes have all given rise to ever more insistent calls for socially just and environmentally friendly development. At the same time, there is a growing realisation that the challenges of our era cannot be solved by government institutions alone; they require the involvement of the private sector. The desire for a broad-based culture of responsibility has led to a large number of initiatives that offer companies options for taking action.
Deutsche Bank, however, has already been active in this area for some time. For example, as one of the first signatories of the UN Global Compact in 2000, we committed ourselves to adhere to ten principles relating to human and labour rights as well as environmental protection and anti-corruption. Furthermore, we have built up an environment and sustainability management system at the Bank that fulfils the requirements of ISO 14001.
The consequences of the financial crisis have strengthened interest in sustainable business models considerably. Perceptibly more investors attach importance to sustainable business management that takes ESG criteria (Environmental, Social, Governance) into consideration today than five years ago. Experts estimate that sustainability oriented investments already account for about 20 percent of the global market – with clear indications of continued growth. For the companies themselves, good sustainability performance frequently pays off through lower cost of capital. In addition, it creates advantages relating to retention and recruitment of staff.
That is also the case at Deutsche Bank: our sustainability orientation plays an ever more important role for the motivation of our employees and it helps us win over junior staff in the face of international competition. At the same time, we also make use of our sustainability competence in our business, because more and more clients are developing sustainable products that we – as the financing bank – have to understand in order to provide appropriate advice.
Our Strategy 2015+
In view of all this, the question is why that commitment to responsible corporate governance did not protect us – or others – from the kind of misguided business developments that culminated in the financial crisis. Self-critical reflection brings us to the conclusion that the discussions about our corporate responsibility had only limited impact on our core business in the past.
Now our Strategy 2015+ and the cultural change that we have initiated are changing that. Today, Deutsche Bank requires every employee to intensively examine and live by our revised corporate values and beliefs. That also includes the question of what honest, client-oriented and partnership-based conduct means in everyone's own sphere of responsibility and how that must be ensured. For example, protecting human rights does not only mean that we respect those rights – which goes without saying. Instead, we as a bank also have to determine whether our clients and their suppliers act properly and then work towards achieving good conduct, if needed and if possible,as we may also be blamed for all ethically questionable business practices along the value added chain of our clients through facilitating their business financially. Therefore, if we scrutinise risks of that kind much more closely in the future, that may mean that we will have to reject a business transaction.
Our understanding of Corporate Social Responsibility (CSR), our social responsibility as a company, has also changed throughout the course of all this. Unlike in the past, the central focus for us has shifted to responsibility resulting from our core business. Additionally, we will continue to support social initiatives in the area of education, social change and culture with undiminished commitment. But successes in such areas cannot and should not offset possible deficiencies in our core business. Similarly, we do not perceive our investments in climate-neutral business operations as compensation for possibly financing business transactions that have a negative impact on climate. Instead, our objective is to build on the opportunities of a sustainable business policy in our core business, such as those that are arising from the energy transition in Germany. It is estimated that the latter will require investments in the amount of 30bn Euros a year. New markets that are dependent on innovative financing models will emerge in the coming years and decades.
At the time this text was published, Sabine Miltner was Deutsche Bank‘s Group Sustainability Officer.
“The struggle to find sustainable solutions demands and drives innovative approaches with the potential for long-term success.”