External advisory body underpins sustainable investment at ABN AMRO’s Bethmann Bank

Bethmann Bank, a German private bank subsidiary of ABN AMRO, came up with the idea nine years ago of establishing a council it could turn to for advice on sustainable investments. Ulf Dörner, founder and chairman of the Advisory Council for Sustainability, felt it was important that the council’s recommendations should not be tied to commercial interests and that only external, independent advisers should be appointed. Now, thirty quarterly meetings and over seven years later, the council employs five advisers and continues to shape the bank’s sustainable investment portfolio.

Ulf Dörner works as an independent consultant and has more than thirty years’ experience in sustainable development and engagement. He is also a member of the Club of Rome, an organisation of private individuals founded in 1968 by a group of European scientists which looks at the qualitative and quantitative context of global problems like population growth, food production, pollution and the depletion of natural resources.

The advisory body was formed to meet a very real need for clients. “We’re there to give advice on the sustainability of the investment portfolios and on specific investments,” says Ulf. “We also answer questions like what’s sustainable, what’s not and why.” Over the years, the bank has seen that it’s mainly younger-generation clients who have a growing desire to learn about sustainable investment. In fact, it was this trend which ultimately led to the idea of establishing the advisory council to provide independent advice. Besides Ulf, three representatives with a scientific, humanitarian and constitutional background sit on the council. And a fifth member was recently appointed – a young specialist in impact investing.

Assessing sustainability controversies

The council bases its recommendations on the Sustainable Development Goals (SDGs). Ulf explains, “We only accept companies with above-average performance in our sustainable investment portfolios. Controversies are the litmus test we use to determine their quality. We look specifically at data from Sustainalytics which scores companies all over the world on sustainability based on a range of ESG characteristics. In some cases, we’ve excluded certain industries all together, such as tobacco producers. But we also give advice on very specific investment opportunities.”

The recommendations recently issued by the council on one specific cruise line are a good case in point. “Apart from the fact that the carbon emissions generated by just one cruise ship are equal to those of 5 million cars combined, we regularly meet with other controversies in this sector.” Ulf gives an example: “In an effort to present itself in a positive light, the largest cruise line in the world has publicised its zero-waste-on-board policy, but is actually incorporated in the Virgin Islands, a well-known tax haven. The company also adheres to the principle of maximising on-board profits. Passengers are enticed to visit the shops on board and are directed to shops at all the ports of call which also happen to belong to the group. This means local populations don’t benefit at all from tourism. It’s all well and good that cruise liners exist, since there’s obviously a demand for them, but the council doesn’t feel it’s appropriate to include the industry in a sustainable investment portfolio.”

So how exactly does the council go about its work? “We meet four times a year and carry out a sustainability check on the entire portfolio. The companies we’re particularly interested in are subject to further investigation, and we issue any necessary advice. Transparency is key in this respect, and we try to approach our advisory role from all relevant angles and perspectives. Sometimes we’re confronted with dilemmas, but after careful consideration, we’re always clear about what advice we should give.” As its name suggests, the Advisory Council confines itself to giving advice. The Sustainability Board, the international body which oversees and implements the ABN AMRO Private Banking sustainable investment policy, is responsible for making all final decisions. Councils exist only in countries where the bank carries out private banking activities, but any council may submit agenda items to the Board involving ESG investments and sustainability criteria. Conversely, the Board can consult the council on specific themes and topics involving ESG and sustainability.

Clean water = clean investment?

When asked to cite a few examples of the type of advice the council gives, Ulf says, “We were recently asked to give advice about Ballard Power, a provider of clean energy solutions and fuel cells. Our assessments showed that their shareholders included a number of companies we had banned. Obviously, we then had to ask ourselves whether we could invest in a company whose owners failed to pass our screening procedure. We then decided we had to base our conclusion on how sustainable the company was, not on who its shareholders are. Another case is water purification. We believe that access to safe drinking water is a human right. It also happens to be one of the SDGs. That’s why we applaud companies committed to purifying water. In one specific situation, though, some of the water in question was destined for soldiers in war zones. In this instance, we decided to give the green light only if that water represented a very small portion of the total turnover. It’s decisions like these which we have to think long and hard about.”

So Ulf and his colleagues basically have to know everything about everything…? “Not exactly,” he says. “After all, we bring our own individual expertise and experience to the mix. Plus each of us has a network of advisers we can call on. We feel it’s important that our decisions are transparent and can be replicated, that they’re documented and tangible. In the end, the vast majority of our advice comes down to the question of integrity.

Stephan Isenberg, Member of the Management Board of Bethmann Bank: “The fact that internationally renowned experts agreed to form our sustainability council confirmed that our approach to sustainability was a step in the right direction, and it supports our credibility. Our discussions with the council and the consequences may even be troublesome to a point where we are not allowed to buy certain shares. This supervisory body - in addition to the research database Sustainalytics - provides our clients with an extra level of security that our sustainable investments really are sustainable.”