Covid-19 has highlighted the crucial role of environmental, social and governance (ESG) factors in today’s business world. The overwhelming impact of the pandemic on business enterprises has shown that ESG, far from being just a vogue, often vague, term spouted by executives riding the social-consciousness trend, should be part of the strategy to sustain operations and enhance profitability.
Deutsche Bank recently appointed a dedicated head of ESG in the Asia Pacific. Kamran Khan, who occupies the newly created role, believes that ESG is not a product-driven strategy, and it must be scalable. Deutsche Bank joins other institutions that have similarly ramped up their ESG credentials.
“You're not going to make ESG sustainable if it's not creating value,” Khan tells The Asset during an exclusive interview together David Lynne, chief country officer in Singapore and head of corporate bank as well as fixed income and currencies for the Asia Pacific.
Lynne relates that ESG is now foremost in the minds of many of the bank’s clients. “Over the past 18 months, the first topic of conversation with clients on both sides of the balance sheet has been ESG,” he notes. Its importance has become even more evident amid the coronavirus pandemic.
“We are looking at ESG as a commercial play, this is not CSR (corporate social responsibility), this is not marketing,” Khan continues, adding that he is glad the bank’s leadership is aligned with his idea.
Khan’s new role is comprehensive as it extends across all the four divisions of the bank – corporate banking, investment banking, private wealth management and asset management.
In June Deutsche Bank completed Asia’s first foreign exchange derivative linked to ESG key performance indicators (KPIs) involving food and agribusiness giant Olam International.The ESG-linked FX forward enables Olam to lock in a discount when it meets pre-defined ESG targets which supports the UN Sustainable Development Goals.
Under the deal, Olam executed a one-year USD/THB FX forward to hedge its exports. Thecompany sources the products from farms in Thailand in Thai baht and sells them to customers who pay them in US dollars, thus exposing Olam to currency risk.
Says Khan: “The Olam dealis an ESG deal with a clear Deutsche Bank signature – it required smart structuring, deep understanding of markets and operational familiarity with sustainable development projects. Anybody can look at it and say, ‘I can see how Deutsche Bank is well placed to do this deal.’ The deal provides an innovative structure to solve a client problem and establish a new model for ESG impact measurement."
Much of the success of the deal relies on the ability of the company to attain the stated goals. “If you look at it, you have a lot of these ESG deals (depending on the one in the) driver's seat to ensure that those outcomes will be attained,” he says. “So in a corporate setting, we have a company that has made those commitments and we have gotten ourselves comfortable enough that there's strong enough commitment for them to execute and we have given them incentive to execute.”
Khan and his team are running a postmortem on the Olam deal to see how they can do similar deals quicker, cheaper, and better, and how they can apply the deal’s structure to other environments and other client types.
“Our focus on the on-the-ground impact of ESG investments is in keeping with our 150 year global banking experience and our excellent CSR record. That will be our key ESG signature - the differentiator going forward.”
The pandemic is also focusing attention on business continuity, and Lynne sees it as being led by digitalization. “We've managed to roll out a lot more digital capability, when it comes to accessibility, and particularly approvals internally about how to do things. Big financial institutions can be quite slow at approvals, so it’s amazing how you can speed that up when you really need to,” he says.
Lynne has seen areas where industries need to embrace the digitalization of processes. He notes that wet signatures are still required for certain documentation, a procedure not compatible in these times of social distancing. “It's a legal system thing, if you think about it. It's not really a regulatory requirement, it’s the law. So definitely I think this current environment will speed up the comfort of the law to accept digital signatures a lot more.”
For Lynne, the most conspicuous difference since lockdowns began in February has been the absence of traveling regularly around the region.
“I'd spend pretty much every week on a plane going somewhere, for personal meetings with our staff and particularly with our clients. And a lot of the client meetings are door-opening relationship meetings which aren't really things you can do over the video. So that's been hard on the process,” Lynne says.
Currently, Deutsche Bank has about 30% of its workforce in the office in Singapore while about 70% are working from home. Lynne says the model is functioning well with only a few downsides such as whiteboarding ideation meetings, which he believes is still best when done in person.
For the bank’s employees in Mumbai, Bangalore or Manila, where they spend hours commuting, working from home has proved effective and is allowing them more family time, he notes.
As to the social impact of the pandemic, Lynne says the bank has been keen to care for younger staff and those who live alone. “There are different stratospheres of your workforce in terms of their home environment and their social environment, and you need to be a bit cognizant of that. Some people's social life revolves around actually coming to the office. So if you take that away from them, it's quite tough on them,” he notes.