Europe 2021: ökonomische Herausforderungen und Trends 2021 mit Asoka Wöhrmann (DWS)

It seems to me, I don't want to be too pessimistic. I believe that until the third quarter we will still feel fully caught in the corona pandemic, and then the fourth quarter will hopefully bring us the cyclical recovery we expect. But we will have to wait until the end of 2023 to overcome this corona dip, and that is a long time. In my opinion, we need to shape the entire program, both economically and socially, for the next three years. It will be essential, especially since it takes almost three years to overcome such economic dips. And it's not like some like to imagine that the crisis will be over quickly once the vaccines are available. The famous V-shaped recovery probably won't happen. So how do we prepare ourselves, both economically and socially, for this longer stretch? When you hear everything, you think it's a normal economic crisis. But I think this is a real caesura for the global economy, and you can feel it. It's strange that in Germany, the population is in a really bad mood due to the length of the crisis, while the economy and especially the manufacturing industry are actually developing positively, partly because the global economy in Asia is booming and the USA, though not as severely affected, is holding up well. That helps the export-oriented manufacturing industry. But we have to say that the service sector in Germany and everywhere is suffering dramatically and will undergo incredible changes. And I think we also have to realize that this crisis, which we tend to forget and often don't say, in the last ten years the state has had to rescue the economy and partially nationalize certain companies multiple times. That's within ten to twelve years, and we will all have to bear this heavy burden. And I think it's interesting to talk about that.

Yes, I think the CEO of Microsoft said a wonderful sentence, and I think it's vivid: what normally happens in two years happened in the pandemic in two months, especially in the area of digitalization. Digitalization is a winner of this crisis. It has already taken a big place in our private lives, but in the economy it was progressing slowly. This crisis has shown, and we have all experienced it, not only that we are having a digital conference, but remote working and the entire e-commerce boom like never before, online banking, online learning, online school, everything is online. I feel these online trends will continue to eat into the economy, and we will have made a huge quantum leap in digitalization. We must not give that up. But it also means great challenges regarding infrastructure. We will have to invest in infrastructure, especially in the digital world, and states will also have to engage much more in the internet sector to provide good infrastructure. I think that's one thing.

The second topic is, of course, and we heard it several times today from Mr. Scholz and also in your previous conversation, 'low for longer' – fiscal and monetary policy will remain loose for a long time. One thing is clear: this crisis has brought us into a new debt spiral. It was already there before, except for Germany, but globally and in Europe we have entered a focused debt spiral again. That means interest rates will have to remain low for a long time, at historical lows. Japan is the prime example; Japan has been in the interest rate trap for 20 years, and Europe, in my opinion, will have to commit to a decade of zero interest rates. That is the second point, and it has high implications.

For example, for your clients who want to generate returns in the capital market, they have to take more risks. What does it mean economically for real estate and so on? Interest rates were always a compass for the economy – is an investment well placed or not? Now we have the feeling that this compass is really there, and we have to decide very well on the quality of an investment because interest rates will be a very difficult indicator. Secondly, government debt, as I mentioned, will dominate the capital markets, and the debt reduction process will proceed much more slowly. That means the government debt sector will dominate the debt sector. That is important, but those who have good investments can of course borrow at low interest rates and realize their life dreams or business dreams. I think that is a positive effect. But the biggest, and I've been saying this for years and it's not just from COVID, COVID was an accelerator, is that private customers and especially savers will lose real returns. Real interest rates have been negative for years, and nominal interest rates are now also negative. You can imagine that savers are the losers of this crisis and this decade if they don't take calculated long-term risks, namely investing in stocks.

We have never had a good stock culture in Germany for various reasons compared to the Anglo-Saxon world. But it will certainly be a topic: how do we get private investors away from savings accounts and into calculated long-term investments? I think that is essential. I believe that retirement provision in Germany is greatly overestimated because we will not only have to rely on the state pension in the long term; we also have to build on private pillars in asset management. That will become even more difficult, and in my opinion, new product worlds will have to emerge, and advisory processes will have to be adapted to advise clients well in the zero-interest phase. To miss this topic means to miss the future.

Then I have to look at infrastructure; there is a lot to do in the world. It's not that there's nothing to do. We have ecological transformation, social transfers mentioned. So, to put it bluntly, isn't it not so bad that we can currently get cheap capital as a state and as a company given these huge tasks? It is a habit we have: savings culture means interest income culture in Germany and many other countries. We shouldn't always pamper ourselves as Germans; the Japanese were similar, but many other states too. Saving used to mean earning interest; saving today means not interest but loss of wealth. People first have to grasp this transformation. Think about it: in 1982, two-year interest rates in the US were 12%. Who was interested in stocks then? They were classified as risky investments, which they are if you engage in individual stocks. That's why you have to see it in a portfolio context. But aside from that, I think today, and you are absolutely right, savers have to become entrepreneurs to some extent. Being an entrepreneur means taking certain risks, and you can only balance these risks well if you save long-term in calculated risk papers like stocks. I always say, in Germany we have the best companies in the world, we should be proud of them, and we should save there. And honestly, if you look at the last 150 years of economic history, the great crises, currency reforms, world wars, the great companies have always moved upward. Therefore, I am a big convinced fan of stock saving, and that too long-term.

In English we had ESG and sustainability. The sustainability topic is here to stay, and I can only say, and I come back to the financial industry, it is a societal topic. You mentioned Greta Thunberg and Fridays for Future. I have to say that this topic is now at the center of society. It has become a piece of the zeitgeist. It's not only because Greta Thunberg and Fridays for Future took to the streets, but I notice that young people want to talk about this topic and want to act. I have a 16-year-old daughter, and there is no dinner without her putting this topic of sustainability, ecological issues, but also social aspects at the center. That means the new youth, and we think they are always on the internet, they are very open to these topics. Therefore, it is a topic for society, politics, the economy, and the financial industry. We have been dealing with ecological transformation in the asset management industry for 20 years, but we have never dealt with it as sustainably as now. This is the time. I mentioned earlier that this topic is a topic of the decade, just like zero interest rates. You are absolutely right. But I find this topic, and that's why I want to emphasize its importance, that these coming ten years will decide how we live the next 50 years. And it's not only climate risks; there are also social issues. You see social eruptions everywhere. We have to be very careful. The financial industry will have to embrace this topic and has already embraced it. I can only say, as an entrepreneur and head of an asset manager, we have to go even faster. This topic has no more time to wait. That means we, as entrepreneurs and asset managers, must take our responsibility in how we want to steer companies and what is demanded of us.

Yes, yes, that's true. She has these questions about oil stocks, but also meat production and many other topics. She doesn't like meat, but she likes to drive, she still likes to drive a car, so she pressures me for an electric vehicle, maybe also because of the hype. But in my opinion, she also asks the right questions about distribution and ecological risks, in the sense that she herself hasn't yet reflected that electricity doesn't come from the socket and also has to undergo a transformation. You have to talk openly about that. These discussions are heated but good, and they sharpen me personally.

I admit, and I have to say this and reflect on my own career, for many years as a fund manager I focused on returns. Even though we looked at ecological risks, it was always secondary. Today, since 2015, we can say relatively clearly that if we embed climate risks in our processes and decision-making, it could even show better returns. Especially in 2020, COVID was also an axis. We can show from data over the last five years that minimizing climate risks in portfolios even led to better performance for clients. That was well known among institutional clients, and the topic is becoming mainstream and is also reaching private clients. And you know what? It's not only the return that our clients ask about. Even normal private clients come and say, 'How can I balance return with environmental topics or sustainability?' Not only young people, but all savers today. And the topic shows itself, and it's easier for us because we can show over the last five years that these strategies even have better performance than standardized ones. Therefore, the change is there. We have to seize this sustainability moment and bring these changes into the economy and society. That is also our responsibility.

And if you really... we don't have much time, but oil producers are already investing in renewable energies. They already see that their future lies in other areas. I think we have to accompany these change processes. That is our task as asset managers. We have clear guidelines for climate risks, but also for social and governance aspects. But if the companies we invest in do not comply, we will exclude them. But what we do not do is exclude a company just because it is an oil company. I believe we have to engage so that they increasingly undergo a transformation. As you so wonderfully said, this ecological revolution is also a piece of evolution. It doesn't happen overnight. I believe this path of engagement, of dialogue with companies, and if they no longer want to listen, then we have to exclude them. We are really intent on taking this hard path. And as you say, for us it is clear: increasingly, bringing returns in line with sustainability is our greatest goal for the next ten years, and in the next two to five years. I don't want to push it to ten years. You said ten years is not verifiable. For us, it is immediate. That means voting behavior at annual general meetings, absolutely similar things. But also between annual general meetings, we have to go into regular dialogue with companies. And then use the annual general meeting. Those who do not achieve the goals promised in dialogue, we have to denounce. That will happen. And companies that do not suffice, we will exclude. That's how it is. The world that wants change must also want and be able to take this hard path.

I think the corporate sector alone will not transform itself. So we will have to have a state steering process. That can be regulation, it can be certain political guidelines, but also public pressure. Do not underestimate its effect. In my opinion, the public plays a big role. Of course, as mentioned several times today, you also have to put the facts and data on the table. I am categorically against excluding sectors a priori. Because if we don't invest, prices will fall, stock prices will fall, and hedge funds will buy them up and revive them. Because for the next 20 years, we will still have to rely on conventional energy sources. This change, for me, revolution is a mix that will take 20 years, maybe even 30 years. I think we have to accompany this process. But the regulator also has to make certain specifications. We have been waiting for a long time for the EU to give us a taxonomy. There are certainly issues: Germans don't like nuclear energy, the French do. Is it clean technology or not? In Europe, this taxonomy will certainly set a benchmark. I expect it in 2022. We are already active. We have to go beyond that; these are minimum criteria. I believe an asset manager who wants to be in the field of sustainability must take the taxonomy as a basis but go beyond it. I always say, and I avoid it, 'license to operate' – it is really the operating license for our company in the coming years. I think regulators should act, politics should give certain guidelines, and politics should also act itself. I find that when Biden, for example, comes in and symbolically in the first week returns to the climate agreement and also announces that he will order electric vehicles, no matter how you like it, I think that is a symbolically strong force. Politics has this power in its hands. And we as companies must clearly feel this pressure but also this force for change. I always say, for me this topic is a century topic, and that's why the decade is so full, almost short.

I have never been in favor of bloody revolutions. I think German reunification was first-class, a fantastic peaceful revolution, a dream. Two parts of a divided population came together; that cannot be celebrated enough. It was a blueprint for divided countries in the world and for many states. But the point is correct: since the Industrial Revolution, the sustainability movement is the biggest change process that the population faces. And it's not only politics, industry, and the economy, but all of us have to change. That means a nearly 300-year process is coming to an end. The Industrial Revolution has to be put on a new footing, a green industrialization. I think we have to tackle this topic. That is the strong translation: we are at the beginning of this revolution, as you say. It doesn't have to be bloody; it should be green enough and perhaps forceful.

We have a whole range of sustainability criteria, but also external databases that we use to classify the 13,000 companies we are invested in or that can be in our investment universe. With the 750 billion we are invested in, we have a rating from A to F. The worst F, we take them out or engage with companies. We say, we go into engagement with these companies, and if they don't change, we will exclude them. But also, in the future, products will only be considered active products if we really think about establishing sustainability as a primary goal as a corporate strategy. That change is important. I think NGOs can always talk when you have a blank slate. But we have a history that we also take with us. Therefore, I think it's a process. But you have it, it's really... I'm not a good text between revolution and evolution and the impatience we have to have for this process. I am a bit of an Android/iOS, it will also drive and change us. Important also a steak that we should not leave unconsidered. Thank you very much for this very exciting conversation. Revolution, evolution, it moves us all in the coming days. Thank you very much, and I hand over to Mr. S. Thank you.