With the shift towards climate neutrality, the financial world is also changing. The players on the capital market are making it clear: those who do not align their business activities with ESG-criteria are risking their future. Sustainable action is becoming a requirement, while green financing is becoming more and more important at the same time.
We admire how the NGOs have drawn people’s attention to the climate
WITH Antje Schneeweiß & Andreas Kusche
What criteria do sustainability-oriented investors use to decide who they give their money to? And what changes will the new EU taxonomy bring for the capital market and the affected companies? Antje Schneeweiß, Secretary of the Working Group of Church Investors in the German Protestant Church, and Andreas Kusche, Investor Relations Manager and ESG expert at the Mercedes-Benz Group, are discussing two perspectives on a current issue.
Secretary of the Working Group of Church Investors in the German Protestant Church
Investor Relations Manager and ESG Expert at Mercedes-Benz Group AG
Ms Schneeweiß, what criteria do companies have to fulfil in order to be a sustainable investment for the Arbeitskreis Kirchlicher Investoren?
Antje Schneeweiß: Our members are institutional investors, such as pension funds, who pursue a rather conservative investment strategy. They focus on highly capitalised companies. However, our investment policy precludes certain companies, such as arms manufacturers. We also exclude the tobacco, gambling, coal and fracking industries. Companies that are suspected of systematic human rights violations are excluded as well. In general, good ratings in the areas of human rights and climate are very important to us.
How do you determine a company’s specific environmental and social performance?
Antje Schneeweiß: We do so on the basis of ratings from rating agencies. We communicate directly with other parties regarding issues that we consider to be particularly important. With the aim of working together to further reduce CO2 emissions, we initiate dialogues with companies and try to achieve improvements in cooperation with the non-profit organisation CDP. Over the past two years, we have also had an intensive exchange with automakers including Mercedes on the issue of human rights in the supply chain. The churches have many partners in resource-rich countries and therefore also have considerable knowledge concerning local conditions.
More momentum for sustainable investments
Mr Kusche, let’s switch the perspective. What do investors demand of Mercedes-Benz?
Andreas Kusche: We have a very differentiated shareholder structure that includes three major shareholders, around 50 percent institutional investors and around 20 percent private investors. The requirements correspondingly vary. Pension funds, in particular, pay attention to the dividend yield and the long-term minimisation of investment risks. ESG-based investment approaches are of interest to them because they don’t just focus on key financial indicators, but also take into account other opportunities and risks. However, some changes are now also occurring at hedge funds, which generally tend to act more in the short term. There is thus considerable momentum with regard to sustainable investments and we at Mercedes-Benz are aligning ourselves accordingly.
How do you handle disparate requirements?
Andreas Kusche: I think we are well positioned to meet all requirements, even though the range of demands is certainly broad. In addition to our large and long-standing shareholders, such as the Kuwait Sovereign Wealth Fund, which has held a stake in our company since 1974, more than half of our shareholders are institutional investors. Among other things, they want to use their commitment to advance global sustainability goals, such as faster decarbonisation. We can also serve them well with our alignment with ESG criteria and with our green bonds.
Challenges associated with the assessment of social criteria
Ms Schneeweiß, does your initiative also focus on the ESG criteria so that the investment strategies take environmental and social risks into account?
Antje Schneeweiß: Yes, very much so. The climate has become a crucial concern over the last three to five years. As a result, every investor now realises that failing to take a company’s climate-related risks into account can lead to big losses. Moreover, climate-related activities are easily quantifiable because CO2 contingencies can be calculated and consumption can be measured. Some social aspects are more difficult to express in numbers. In addition, it’s not always clear who is actually responsible. Germany’s Supply Chain Act is an initial important step in this respect. Nevertheless, rating agencies often assess social performance in widely divergent ways and this causes uncertainty among investors.
Andreas Kusche: I agree. When it comes to decarbonisation, the Greenhouse Gas Protocol (GHG) is a carbon accounting standard that enables a basic comparability. However, with respect to social sustainability, transparency and trust are important benchmarks. In many cases, the processes in question extend far down the supply chains and external parties might find it hard to determine their impact.
Antje Schneeweiß: It’s not just in the supply chains, but also in the direct vicinity of the companies that the transition to a climate-neutral society poses a variety of social challenges. The EU uses the expression ‘just transition’ for this. The way employees are treated plays a key role here. I’m sure that ESG-focussed investors also look closely at companies like Mercedes-Benz from this angle.
Andreas Kusche: Of course. Especially in our industry with changed job profiles, this aspect is elementary. We are cooperating closely with the works council to make the transition to an electrified and digitalised world fair and socially acceptable. In addition to training courses and further education measures, we are also focussing on the recruitment of new talents for the software segment, for example. We are also in discussion with the municipalities that are affected by the restructuring of our facilities. We have a clear strategy and appropriate goals and measures for all of these areas.
Potential for improvement for labour rights
Are there any other social topics that will receive more attention in the future?
Antje Schneeweiß: The way data is handled in a networked world is becoming an increasingly important issue for consumers and consumer protection organisations. At the same time, we must not forget that the big social issues, such as living wages and child and forced labour, are still given too little attention. That’s not the case with regard to the climate. We admire how the NGOs have drawn people’s attention to this topic with the support of the scientific community. Unfortunately, we don’t see such progress when it comes to labour rights. The situation of trade unions has even tended to worsen in many countries.
What role does the active exercise of shareholder rights play in also influencing change in this area at companies?
Antje Schneeweiß: The exercise of the voting right is especially important for our large institutional investors. Here we work together with voting rights consultants. In addition, we engage in the dialogues mentioned earlier. The next one will address Germany’s Supply Chain Act. Our aim is to encourage companies to conscientiously fulfil the requirements. Unlike ratings, such discussions generally go into great depth. They enable us to ask questions and receive replies, and that’s exactly what provides us with guidance.
Do these dialogues also produce concrete results?
Antje Schneeweiß: Our experience so far has been mostly positive. We have also talked three times with Mercedes about the environmental and social risks associated with the procurement of raw materials. I remember the high level of expertise of the participants as well as their commitment to human rights issues. Ultimately, it’s crucial how influential these committed experts are within the company.
Andreas Kusche: Human rights issues are a top priority at our company. The dialogue with investors helps us to continually generate a corresponding momentum within the company. In general, whenever investors pursue a specific goal, it will sooner or later become relevant for the company’s supply of capital.
Antje Schneeweiß: That gives me hope.
The EU taxonomy improves comparability
How exactly does the EU taxonomy affect your company? Will you only focus on activities that conform to the specified criteria in future?
Andreas Kusche: We have set the course for 2030 and we want to be all-electric by then, wherever market conditions allow. In doing so, we’re also following the requirements for emission limits for sustainable vehicles in terms of EU taxonomy. Plug-in hybrids and battery-electric vehicles are to account for 50 percent of our unit sales by 2025. We want to align our capital allocation accordingly. However, I think that the actual achievement of the EU taxonomy is that companies will also have to communicate the financial benefits of their sustainability activities in the future. This will improve comparability. Within the company itself, it will cause the finance and sustainability units to become more closely coordinated. We’re very curious to see how this new transparency affects investment behaviour.
To conclude, I’d like you to just give your personal opinions. How do you define sustainable mobility?
Antje Schneeweiß: I didn’t get a driving licence until I was 42, and I have to admit that I probably never will become a car enthusiast. For me, sustainable mobility primarily takes place in public transport.
Andreas Kusche: There also has to be a range of different forms of mobility.
Antje Schneeweiß: Exactly. That’s especially the case in rural areas. Unfortunately, local public transportation has been gradually cut back in our region. I think this was a mistake, especially with schoolchildren in mind. The first step should therefore be the revival of public transportation, also in rural areas, and the development of new concepts. Wherever that doesn’t make any sense, there’s space for individualised transport that ideally should be electric.
Andreas Kusche: As long as there’s a charging station, out in the countryside.
Antje Schneeweiß: I’m confident that will be the case. Our municipalities have already noticed that tourists who make day trips won’t come if they can’t recharge their vehicles anywhere.
The future of sustainable mobility
Mr Kusche, how do you define sustainable mobility?
Andreas Kusche: For me, it’s a combination of mobility options — in the area of public transport as well as in individual transportation. And this combination should, in turn, be organised in such a way as to have as few negative effects as possible. This pertains not only to the environment but also to social aspects. With regard to automobiles, it’s important to examine the impact of mobility throughout a vehicle’s life cycle. The social aspects we’ve previously mentioned also have to be taken into account.
Are you convinced, Ms Schneeweiß?
Antje Schneeweiß: For me, the most convenient kind of mobility enables me to simply sit down and not have to worry about anything else. I guess that this will probably be possible in a Mercedes-Benz someday as well?
Andreas Kusche: Yes, although this will still take several years. However, you’re welcome to gain some initial experience with the new S-Class, which is coming out in 2022.
Antje Schneeweiß: Let’s agree that automobiles will certainly not disappear entirely. Nor should they, because in some areas they make sense.
Thank you very much for this interview.
is Investor Relations Manager and ESG expert at the Mercedes-Benz Group AG. Here he is responsible for capital market communications concerning the ESG factors. He has a degree in engineering management, mechanical engineering/vehicle technology and controlling. Andreas Kusche joined the Mercedes-Benz Group AG in 2006 and has worked in his current position since 2019.
is the Secretary of the Working Group of Church Investors in the German Protestant Church. She has been working in the field of sustainable investments for more than 30 years. Among other things, she has published a book titled Kursbuch Ethische Geldanlagen (Guidance for Ethical Investment) on the topic. Since 2020, she has reported for the Social Taxonomy subgroup on the European Commission’s Sustainable Finance platform.
An effective and successful transition is one that is just and equitable
WITH Paul Bodnar
BlackRock, the world’s largest asset manager, has a clear ambition: The company wants to accelerate the transformation to a climate-neutral society without leaving people behind along the way. In an interview Paul Bodnar, Global Head of Sustainable Investing at BlackRock, outlines the conditions for a just transition and the important role of governance.
Managing Director and Global Head of Sustainable Investing at BlackRock
From an investor perspective: What demands does a shift towards more sustainable business models require from the automotive industry – and Mercedes-Benz in particular?
First and foremost, the global energy transition – and more broadly, the transition to a net zero global economy – is going to impact every industry’s business model. From an investor perspective, companies need to be able to demonstrate that their long-term strategic plans are resilient through the transition. That is, as governments enact policies to support the transition, consumer preferences change, and new technologies emerge, how are the companies going to continue to deliver value to shareholders over the long-term? Those that are unable to adapt may see declines in their valuations. The transition is already well underway in the automotive industry, as our CEO, Larry Fink, recently highlighted in his most recent letter to CEOs. Innovative – and disruptive – new companies have entered the market, and today every car manufacturer is pivoting towards electric vehicle manufacturing. EV sales in some countries doubled last year from the previous year, reaching ten percent of global sales, and projections estimate all-electric vehicles to make up over half of new vehicle sales by 2030. This is a dramatic pace of change for an industry with long product planning lifecycles. Mercedes-Benz has certainly been a prominent leader not just in target-setting but aligning capital plans by moving new vehicle architectures to all-electric after 2025 and spinning off the trucking division to focus more on hydrogen powertrains.
Transformation can only succeed if it involves as many stakeholders as possible (decision makers, politicians, etc.) and if broad political and societal consensus is upheld. Can the transformation prove effective without jeopardizing the other two?
At BlackRock, we talk about this a lot. For us, an effective and successful transition is one that is just and equitable, meaning it doesn’t disproportionately harm or leave behind vulnerable communities. For example, we need to continue to ensure that reliable and affordable energy is available to all communities, not just those in windy or sunny regions. From the automaker’s perspective, EV-based vehicle platforms may support fewer manufacturing or maintenance jobs. What does that mean for the communities in which the manufacturer is the largest employer? As companies adjust their strategy to align with the net zero transition, it’s important that they take a stakeholder-centric approach. But clearly, the private sector cannot address all of these issues on its own. Governments, in particular, need to take a leading role in the transition by providing clear pathways and consistent policies and by supporting the development of new technologies that aren’t viable today. As investors, we believe that a more favorable macro-environment from an orderly transition to net zero will benefit companies and ultimately our clients, the shareholders. But failing to move forward in the transition together as a whole society risks creating polarization, resentment and inequality, which will stymie progress.
What is most important for BlackRock when it comes to the transformation of the automotive industry and considering ESG criteria?
Every industry operates in the context of evolving societal expectations about the role of companies in advancing sustainability objectives. As a shareholder of public companies on behalf of our clients, BlackRock is focused on how companies are positioning themselves to generate long-term financial value for shareholders amidst these changes. Much of it hinges on effective leadership and governance. As automakers shift their business strategies, it’s important to ensure that they have the right governance model in place to oversee the new strategy. Do they have directors with appropriate expertise on their boards? How are they managing the risks inherent in new technologies? Does it make sense to combine or separate certain businesses? Not every automobile company is going to look the same. It’s up to the board and management to cast a critical eye at these issues and make sure that they’re prepared for the transition.
is Global Head of Sustainable Investing at BlackRock and Managing Director, driving BlackRock’s leadership in sustainable investing. He previously served as Chief Strategy Officer at RMI as well as Special Assistant to President Obama and Senior Director for Energy and Climate Change at the National Security Council. Additionally, Paul Bodnar has been U.S. lead negotiator for climate finance at the State Department. Earlier in his career, he was Director for Carbon Finance at Climate Change Capital. He founded the Center for Climate-Aligned Finance; helped to establish the Mission Possible Partnership; and was co-founder and partner at Vertis Environmental Finance. Paul Bodnar holds a BA from Stanford and an MA from Harvard, both in international relations.