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Ms. Zurkow, what personal experiences will you take away with you from the Covid-19 crisis?

Deborah Zurkow: The pandemic called an abrupt halt to our way of living, and taught us that we could do with showing a little humility in the developed world. Covid-19 is to some extent a child of our times, shaped by mobility and globalisation: a disease that can be transmitted from person to person even in fleeting encounters naturally has the best chances of spreading in a mobile, globalised world. An infected person can easily infect all the occupants of a subway car, or all the guests at an après-ski party. We need to pay more attention to protecting what we’ve achieved, rather than just striving for new and greater things. We must strike a balance between resilience/stability and efficiency.

How has this crisis changed the asset management business in the last few months, and what challenges will the asset management industry face over the next few years because of this crisis?

Deborah Zurkow: Our industry has impressively demonstrated its operational resilience. The crisis plans that we pulled out of a drawer worked on the whole as they were meant to – although they were designed more for large-scale power cuts than for a pandemic. Our people took care of everything else with their adaptability and improvisation skills. In other words, we were further ahead than many of us had thought in terms of digitalisation. When we were forced to work digitally we could do it, and we then further refined our processes as well as our habits. Our employees have now internalised the technologies, and everything is going smoothly, although we know from surveys and comments made in person that our people are really missing direct contact with each other. And I definitely feel the same way! I would much rather sit at a table and have a discussion over a cup of coffee than talk via video conference.

What challenges do you see emerging from this?

Deborah Zurkow: The challenge for the next few years will be to further strengthen our industry’s resilience to exogenous shocks, particularly to shocks such as a pandemic, which do not arise in the world of finance. And now I’m getting to the point: at AGI, we strongly believe that portfolios that are consistently managed in accordance with E, S and G criteria are more resistant to exogenous shocks. That means that the tendency towards sustainable investments isn’t a fad, but a secular trend. Please don’t misunderstand me – we still have a long way to go, and there will be setbacks to sustainable investment. But it’s clear which direction we’re heading in. What’s good is that with many customers, we’re preaching to the converted.

How important do you think green issues and sustainability will be in the coming years, particularly the social aspect?

Deborah Zurkow: Public dialogue is currently being dominated by the subject of climate change, and that’s a good thing. Because we haven’t conducted this battle consistently enough in all aspects of economic and social life, because it’s also a battle with our way of life, our inner weakness. That has priority, which is why we’ve just switched a whole range of funds to the principle “Climate Engagement with Outcome”. But at the same time we need to think beyond the subject of the climate; we’re working more or less simultaneously on ESG 2.0, 3.0 and 4.0.

What does that mean in practice?

Deborah Zurkow: The S in particular became the focus of attention again as a result of Covid-19, because social issues are playing out in our front and back yards: unequal access to digital education, poor Internet in rural areas, rising inequality because low-wage jobs are more strongly affected by the pandemic. We have adapted our guidelines. For example, during the current general meeting season we’re voting against increases in managers’ pay if a company has cut jobs due to the pandemic. The same applies if a company has reduced or cancelled its dividend, or if it has received direct government support.

A/    GOVERNANCE AND THE ENVIRONMENT ARE THE MAJOR ISSUES

Source: Allianz Global Investors (AGI).

There are a lot of good approaches with desirable effects: Impact Investing, ESG, Green and Sustainable, et cetera. Will these individual styles and their sub-forms survive in the coming years, or will there be a process of concentration?

Deborah Zurkow: I firmly expect the integration of ESG into risk management to be the base case for all asset managers in a few years. But beyond that, I’m in favour of variety and competition between offerings. Because as an industry, we want to represent the wide variety of interests and convictions of our customers. We have ethically motivated customers whose intentions we reflect. We have investors like our sister companies, which, in addition to their ESG approach, want to expand their investments in renewable energies quickly. Others want to devote themselves to defined themes in order to have an impact. However, I can imagine that various “gold standards” will become established for certain segments, such as the UN’s Sustainable Development Goals, of which there are 17, for Impact Investing, or more specifically the ICMA’s Green and Social Bond Principles. 

Where do you stand today at AGI on issues like sustainability, and where do you want to stand in five or ten years? 

Deborah Zurkow: We are currently, above all, a more or less agnostic provider of solutions that helps customers to reflect their values appropriately in their investments. That’s a strong approach, and it rarely leads to conflict, because our customers’ values aren’t that far apart. Sure, one customer might be thinking only about climate protection, while another wants to avoid weapons and gambling. But the difference is purely in the focus, not the fundamental direction. Over the next few years we will evolve into an asset manager that integrates its own company’s values more closely into investment processes, and interactions with customers and companies. Our aim is to actively accompany both of these with the inclusive transition to a sustainable economy. 

What does that mean for the orientation of portfolios? 

Deborah Zurkow: We don’t talk here about steady state portfolios, but about “pathway portfolios”, if you will, which we develop through continuous engagement with investors, and with the companies and institutions in which we invest. We can rely on the distinctive strength of our stewardship approach in this process. We already consider ourselves a leader in terms of our engagement with businesses. Last year we held constructive/critical talks with 224 companies, which in 77 cases related to environmental issues. 

Many companies nowadays are simply altering the way they communicate to sound green and sustainable. Are you afraid that this could result in a greenwashing scandal at some point? 

Deborah Zurkow: I hope not, but we will definitely see cases that are not “true to label”. For some market participants the commercial interest has priority, and their contribution to reversing climate change comes second. I’m concerned that such cases, which can range from simple misunderstandings to deliberately fraudulent labelling, could keep causing confusion, and thereby distract from the fact that the market has set the course for more sustainability. 

What advantages or benefits has the EU taxonomy for green and sustainable activities brought us so far? What is still needed? 

Deborah Zurkow: The EU taxonomy has helped us a great deal, because for the first time it has provided a framework for defining whether an economic activity can be classified as environmentally sustainable – the first requirement for the prevention of greenwashing. For investors who think in very long time frames, it is very important that this classification is implemented in a way that is “open to innovation”. If new technologies or processes become ready for the market in a few years, these investors want to exploit such opportunities at an early stage, and do not want to be stuck with “old” technologies because of the regulatory classification. 

What else does the market need? 

Deborah Zurkow: We need standards for ongoing monitoring. On the one hand, we want to know how the activities of the companies we monitor affect the world around them – including, although not only, from an environmental perspective. On the other hand, we want to know how environmental influences affect businesses. As a portfolio and asset manager, we have the task of investing our customers’ assets in a way that protects and increases their value. It’s obvious that climate risks play an important part in the investment strategy of long-term investors in particular. We therefore encourage companies to comply with TCFD standards. 

What does AGI do as an institution in order to be sustainable, in line with the motto “Practise what you preach”?

Deborah Zurkow: That’s the natural expression of the discussion of values at our company. We want to play an active role in helping to shape a sustainable future, and that means we have to measure ourselves with the same standard we use for our investments – in fact, with a stricter one. Climate change is a key theme, and we have set ourselves clear, ambitious targets here. In facility management we want to switch our power supply completely to renewable energies by 2023, and will achieve this goal in Europe this year. Our overall carbon footprint must be reduced, and our target is a 34% reduction by 2025 compared with the pre-coronavirus year 2019. That won’t be possible without some pain. And we have further targets for water and paper consumption, and the avoidance of waste. We need to change the behaviour we have been used to for a long time, and drastically.

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