RI Interview: Joachim Faber on the German Sustainability Code, UN PRI

Leading investment industry figure talks to Responsible Investor

The last time RI spoke to Joachim Faber, in 2010, he was still chief executive of Allianz Global Investors (AGI), one of the world’s biggest fund managers with €1.8trn in assets. Dr Faber (62) is now retired from AGI and in a position to look back on an eventful 11-year tenure as CEO.

It was a period in which he engineered the takeover of six US asset managers, among them Pimco, that transformed what was just an asset manager for an insurance firm, namely Munich-based Allianz, into an industry giant.

Faber put sustainability front and centre at the Allianz Group. During his tenure, environmental, social and governance (ESG) factors were introduced at all AGI units. Shortly before his retirement at the end of 2011, bond specialist Pimco became a signatory to the UN-backed Principles of Responsible Investment (PRI), following the example of Allianz, which had signed on in the spring of that year.

These days Faber is helping to promote the German Sustainability Code, a set of guidelines for corporate ESG reporting.

Since the Code’s launch a year ago, more than a dozen firms have signed up, including Allianz, Frankfurt bourse operator Deutsche Börse and four other industrial firms on the blue-chip Dax 30 index.

“The Code has been received well by a great portion of German industry because we took care to agree its standards with around 300 industry representatives,” said Faber in an interview in Frankfurt.He said it naturally would take time for companies to sign up in great numbers but said the Code was clearly preferable to a possible move by the European Commission to require reporting on corporate sustainability.

Faber is also an ardent supporter of the PRI due to its role as the sustainability benchmark for investors. “When I was at AGI, I was always baffled by how European and American investors defined sustainability. They were worlds apart,” he said.

“If you consider that we now have very active Asian and Latin American investors, I think it’s essential that we have a standard like the PRI.”

Faber, moreover, feels that another code, namely one for German corporate governance unveiled in 2002, has vastly improved the way the country’s listed firms are run. “There is no comparison to what went on before. The appointment of executives and board directors is completely transparent, as are their salaries and bonuses,” he said. Indeed, such transparency led a group of institutional investors represented by Hermes Equity Ownership Services (Hermes EOS) to challenge the €20m in compensation for Volkswagen CEO Martin Winterkorn and the €2.6m paid to Deutsche Bank’s supervisory board during the firms’ annual meetings last spring.

But Faber is unconvinced that such open displays of investor opposition are the best way for investors to positively influence companies. “My view is that the
reason for these open displays of opposition has not always to do with good governance. Sometimes it only seems to be self-promotion,” he said. He added that most institutional investors, notably those in Germany but also in the Anglo-Saxon regions, believe the best solution is to engage directly with firms instead of tying up the annual meeting.

Turning to other issues facing German institutions like pension funds and insurers, Faber said he understood why so few had so far invested in offshore wind power – even though their money is important in meeting the German government’s ambitious target – 10 GW by 2020 – for the renewable source.

“The simple fact is that whether referring to liability in the case of project delays or the lack of power lines between northern and southern Germany, the investment conditions for pension funds and insurers are not favourable. They’re not venture capitalists, but long-term, conservative investors. So they can’t afford to take any unnecessary risks.”
EnBW, the state-owned German energy firm, won’t takethose risks either. Recently, it said the lack of clarity on liability issues was a chief reason why it was postponing a €1.5bn investment in a new wind park off Germany’s North Sea coast.

On the other hand, Faber said onshore wind parks in Germany continued to serve as an attractive investment for long-term investors, noting that the output of those located near the coast was every bit as high as those offshore. “And the difference is you don’t have the risks of offshore, like water erosion, a possible ship accident or bad weather hindering repairs,” he added. These risks are one reason why Allianz has so far been reluctant to invest in offshore wind parks. The insurer says that from its renewables portfolio, which includes onshore wind and solar, it expects to earn 7% annually – well above current bond yields.

Joachim Faber was CEO of Allianz Global Investors from 2000 to the end of 2011. Since May 2012, he has been chairman of Deutsche Börse, the operator of the Frankfurt bourse. He spoke to RI as a representative of Germany’s Council on Sustainable Development.