Funds Group: DWS Funds
Management Company: (1) DWS Investment Management Americas, Inc., and (2) DBX Advisors LLC.
Funds Affected: (1) DWS ESG Liquidity Fund (formerly DWS Variable NAV Money Fund), (2) Xtrackers MSCI EAFE ESG Leaders Equity ETF
Principal Sustainable Investment Management Strategy: Exclusions, ESG Integration, Proxy Voting (xTrackers)
(1) According to the fund’s prospectus, effective September 1, 2018, in addition to considering financial information, the security selection process also evaluates a company based on ESG criteria. With the exception of municipal securities, a company’s performance across certain ESG criteria is summarized in a proprietary ESG rating which is calculated by an affiliate of the DWS on the basis of data obtained from various ESG data providers. Only companies with an ESG rating above a minimum threshold determined by DWS are considered for investment by the fund. The proprietary ESG rating is derived from multiple factors:
- Level of involvement in controversial sectors and weapons;
- Adherence to corporate governance principles;
- ESG performance relative to a peer group of companies; and
- Efforts to meet the United Nations’ Sustainable Development Goals.
ESG ratings for municipal securities are calculated by DWS by applying a combination of positive and negative screens. From the investable universe of municipal securities, positive screens will automatically include green bonds (bonds that generally fund projects that have positive environmental and/or climate benefits) that meet minimum standards and negative screens will exclude municipal securities with exposure to weapons, issues where more than 10% of the business is attributable to nuclear power or more than 25% of the business is derived from coal, and issues related to gambling, lottery, the production or sale of tobacco, and other sectors deemed controversial by DWS.
The remainder of the investable universe of municipal securities are then scored on key performance indicators in each of three pillars: environmental, social and corporate governance. Only municipal securities with a cumulative score across all three pillars above a minimum threshold determined by the Advisor are considered for investment by the fund.
(2) Included companies consist of firms that rank highly in terms of environmental, social and governance (“ESG”) performance relative to their sector peers, relying on MSCI ESG Ratings, MSCI ESG Controversies and MSCI Business Involvement Screening Research to determine eligible companies.
MSCI ESG Ratings provides research, analysis and ratings of how well companies manage their ESG risks and opportunities. MSCI ESG Ratings provides a company with an overall ESG rating on a seven point scale, ranging from ‘AAA’ to ‘CCC.’ Index constituents are required to have an MSCI ESG rating above CCC to remain in the index, while companies that are currently not constituents of the index are required to have an MSCI ESG rating above B to be considered eligible for addition.
MSCI ESG Controversies provides assessments of controversies concerning the negative ESG of company operations, products and services. MSCI ESG Controversies score companies on a scale of 0 to 10, with 0 being the most severe controversy. Existing constituents of the index are required to have an MSCI ESG Controversies Score above 0 to remain in the index, while companies that are currently not constituents of the index are required to have an MSCI ESG Controversies Score above 2 to be considered eligible for addition.
MSCI ESG Business Involvement Screening Research aims to enable institutional investors to manage ESG standards and restrictions reliably and efficiently. Companies that are involved in specific businesses which have high potential for negative social and/or environmental impact, such as companies in the alcohol, tobacco, gambling, nuclear power, conventional and controversial weapons and civilian firearms industries, are ineligible for inclusion.