- Social aspects are an important success factor for companies.
- DWS has developed a "Social Commitment Score" that filters for companies that perform well with regard to social factors.
- As well as equal opportunities, the "Social Commitment Score" also targets, among other things, the compatibility of family and work.
DWS has refined its sustainability analysis in the area "Social" with a newly developed "Social Commitment Score". It comprises five additional measurement criteria and expands the analysis spectrum to include important aspects such as diversity, inclusion, and development opportunities.
"We want to filter for companies that attach importance to social factors and working conditions," explains Katharina Seiler, portfolio manager and architect of the Social Commitment Score. The score was developed for DWS Invest ESG Women for Women. This new DWS equity fund pays special attention to companies that perform well in terms of social aspects. It invests globally, specifically targets women's investment needs and is managed by a team of 12 female fund managers.
New sustainability indicators strengthen the S in ESG
The abbreviation ESG describes the triad of environmental, social and governance practices that make up a company's sustainability profile. Companies are considered suitable for ESG funds if they fulfil all three dimensions with reasonable balance – for example, if they use electricity from renewable sources (E), run company kindergartens (S) and have an equal number of men and women on the board (G).
But in recent years many sustainability funds have highly weighted environmental criterion – on climate change, plastic waste and resource scarcity – while giving social criteria less attention. In the environmental field, it is relatively easy to measure and compare companies' performances. There is usually hard data showing which company has saved more tonnes of CO2 or plastic. Finding out who offered family-friendly jobs, for example, was much more difficult for a long time. But now, says Seiler, "The data situation has improved significantly with regard to social factors, so that we can better evaluate companies with the help of the new sustainability indicators focused on the S."
DWS's new Social Commitment Score uses five social factors to assess how companies perform in areas such as inclusion and diversity.
Diversity and inclusion complement the working conditions criterion
Until now, says Seiler, the focus in assessing social factors has been strongly on working conditions at the companies examined – whether trade unions are permitted, for example, or whether health care and job security meet high standards. Now, she says, "The new Social Commitment Score additionally measures companies' performance on gender equality, equal opportunities, gender balance at management level, work-life balance and flexibility of the working environment. In the DWS Invest ESG Women for Women, for example, working conditions account for 30 percent of the criterion S, while the diversity criteria account for 70 percent."
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But what is behind the new social criteria in concrete terms? "In the case of equal opportunities, for example, we check whether a company discriminates on the basis of religion, skin colour, gender or age. In the 'compatibility of family and work' indicator, we look at whether the companies allow sufficient flexibility for childcare or looking after a relative, for example," says Seiler. Particularly with regard to the criterion "flexible working environment," many companies have recently made up a lot of ground due to pandemic-related work-from-home needs. "Many companies are in a much more sustainable position today than they were three years ago," observes the fund manager.
The work-from-home obligation has made many companies more sustainable in work flexibility terms.
Like the ESG Engine, the Social Commitment Score awards six grades
Before a share is subjected to business analysis (balance-sheet ratios and strategies are evaluated with a view to a high-yield investment) it undergoes a comprehensive ESG analysis looking at several sustainability facets. This is followed by the S-focused assessment within the framework of the "Social Commitment Score". "Globally, we could invest in about 3000 listed companies. The multi-stage ESG analyses filter the total to just over 600. Then, after fundamental analysis, about 300 investable stocks remain," Seiler says.
The systematics of the ESG engine measure the five new criteria using six ratings, A to F. A or B ratings classify companies as leaders in sustainability, C means average, D means below average with only limited opportunities for investment, and E or F eliminate companies from selection. "In the evaluation, we not only take into account who does best in the sustainability profile, i.e. is 'Best-In-Class', but also the 'Rate-Of-Change', i.e. how fast a company is changing towards sustainability," explains Seiler.
Investors now apparently pay more attention to social criteria overall
The question remains whether the additional social criteria could have an impact on investment portfolios' performances. There are indications on this too, says Seiler: "Some studies show, for example, that the probability of outperformance, i.e. outperforming the overall market, or lower volatility, was higher in portfolios with a focus on social criteria over the past five years than in portfolios that focused on the E." This is one obvious reason why investors are paying more attention overall to social criteria in their investments.
Fund facts for DWS Invest ESG Women for Women
- ISIN: LU2420982006 | Valor: 115382122
- Currency: EUR
- Launch date: 17/01/2022
- Earnings: Accumulation
- Front-end Load[1]: 5.00 %
- Management Fee: 1.500 %Â
- Total Assets: 48.25 Mio. EUR (As of Feb 21, 2022)
Risks
The fund invests its assets in selected regions or sectors. This increases the risk that the fund may be negatively influenced by the economic and political conditions in the respective regions or sectors.
The fund invests in equities. Equities are subject to strong price fluctuations and thus also to the risk of price decreases.
Due to its composition/the techniques used by the Fund management, the investment fund has elevated volatility, i.e. the share price may be subject to significant fluctuations up or down within short periods of time. The share value may fall below the purchase price at which the customer acquired the share at any time.
