DWS Funds

Funds Group: DWS Funds
Management Company: (1) (4) (6) DWS Investment Management Americas, Inc., and (2-3, 5) DBX Advisors LLC.
Funds Affected: (1) DWS ESG Liquidity Fund (formerly DWS Variable NAV Money Fund), (2) Xtrackers MSCI EAFE ESG Leaders Equity ETF, XTrackers MSCI USA ESG Leaders Equity EFT, (3) Xtrackers S&P 500 ESG ETF, (4) DWS Tax Exempt Portfolio, (5) Xtrackers Municipal Infrastructure Revenue Bond ETF, (6) DWS ESG Global Bond Fund
Principal Sustainable Investment Management Strategies: (1-3) Negative screening (Exclusions), ESG integration, (4) ESG integration, (5) Negative screening (Exclusions), (6) ESG integration
Summary:
(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.

(3) Index constituents are qualified on the basis of S&P DJI ESG scores that are, in turn, based on the RobecoSAM AG (SAM) Corporate Sustainability Assessments. These are designed to “identify companies well-equipped to recognize and respond to emerging sustainability opportunities and challenges in the global market.” The analysis depends on responses that companies provide annually in the form of industry specific questionnaires that, according to SAM, evaluate a range of financially relevant sustainability criteria. In the absence of company responses, SAM relies on publicly available information that is collected by its analysts and evaluated. Scores are further informed by means of information derived from daily updates provided by RepRisk that monitors companies’ sustainability performance with regard to issues such as economic crime or corruption, fraud, illegal commercial practices, human rights issues, labor disputes, workplace safety, catastrophic accidents or environmental violations. For purposes of evaluating the eligibility of companies in the S&P 500 index, SAM’s final scores are further refined in collaboration with S&P DJI.
In addition, companies conducting certain business activities and/or companies that are disqualified based on United Nations Global Compact Scores are excluded from the index, as follows:
• Tobacco company exclusions. Companies that either directly, or via an ownership stake of 25% or more or another company produce tobacco, have tobacco sales accounting for greater than 10% of their revenue, or have tobacco-related products & services accounting for greater than 10% of their revenue. The companies are identified using Sustainalytics data.
• Controversial weapons. Companies that either directly, or via an ownership stake of 25% or more of another company, are involved with cluster weapons, landmines (anti-personnel mines) and biological or chemical weapons, depleted uranium weapons, white phosphorus weapons, and nuclear weapons. The companies are identified using Sustsainalytics data.
• Low United National Global Compact (UNGC) Scores. Companies with disqualifying United Nations Global Compact scores that are ranked in the bottom 5% of the GC universe globally, based on Arabesque’s S-RayTM universe which is used to assess very poor performers in relation to the UN Global Compact Principles. The reference date for S-RayTM GC scores is the last business day of March.
Companies with an S&P DJI ESG score that falls within the worst 25% of ESG scores from each Global Industry Classification Standard (GICS) Group are excluded from the index. In addition, if a company does not have an S&P DJI ESG score, then it is excluded from the index. After their qualification, index constituents are weighted in the index using a float-adjusted market capitalization approach.

(4) Portfolio management may consider information about Environmental, Social and Governance (ESG) issues in its fundamental research process when making investment decisions.

(5) The following industries are excluded: higher education, pollution control, housing, healthcare and tobacco.

(6) The advisor incorporates Environmental, Social and Corporate Governance (ESG) criteria into the selection process.  In addition to considering financial information, the security selection process evaluates an issuer based on ESG criteria. An issuer’s performance across certain ESG criteria is summarized in a proprietary ESG rating which is calculated by DWS International GmbH, an affiliate of the Advisor, on the basis of data obtained from various ESG data providers. Primarily issuers with an ESG rating above a minimum threshold determined by the Advisor are considered for investment by the fund. The proprietary ESG rating for each issuer is derived from multiple factors, including:

  • Level of involvement in controversial sectors and weapons;
  • Adherence to corporate governance principles;
  • ESG performance relative to a peer group of issuers.

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