Global economic, social, and environmental trends, as well as stakeholder expectations, shape what we define as material. The economic environment stabilized or improved in many countries during the course of 2016, despite the heightened political uncertainty we experienced in this period, in particular from the outcome of the UK referendum on EU membership and of the US presidential election. Central banks of the major economies played a key role in this recovery by continuing to support the global economy through an expansionary monetary policy.
In addition, historic irresponsible behaviors continued to put pressure on the bank. Therefore, we continued to focus on resolving legal matters, responding to continued regulatory requirements, strengthening the relationships with our clients, and improving operational efficiency.
Digitalization and data security
The dynamic landscape of technology, along with changes in customer behavior and preferences, is driving a trend of digitalization across the economy, with a marked impact on financial services. Digitalization opens up opportunities for product, service, and business model innovations, as well as an enhanced customer experience. It also facilitates more efficient internal processes in that more activities can be carried out electronically, with banking transactions faster and more streamlined. With new emerging players such as FinTechs (financial technology firms) challenging established financial institutions and their business models, it is evident that successful digital transformation will be a key source of competitive advantage.
Digitalization brings associated risks of data security and cybercrime. Breaches may be in the form of terrorist or state-sponsored attacks, or commercial and individual hacking, and they remain a significant risk for the financial industry. Indeed, our own 2016 materiality analysis showed that our stakeholders are concerned with cybercrime and data security, and are challenging companies on the risk management processes they have in place.
While globalization has benefited the world economy in terms of overall prosperity and wellbeing, there are risks associated with operating as a global community; not least the risk of financial crime. Criminals seek avenues to facilitate the flow of their funds and conceal the proceeds. It is estimated by the United Nations (UN) that the amount of money laundered globally in a single year can be as high as 5% of global GDP. A World Bank report also highlights that illicit financial flows—including corruption, bribery, theft, and tax evasion—cost developing countries US $1.26 trillion per year. As a global financial institution, we are exposed to the possibility of being targeted by criminals and misused for illegal purposes. Therefore, we are continuously intensifying our anti-financial crime measures accordingly.
Demographic change, as well as less linear career paths and a growing expectation by employees to enjoy a healthy work-life balance, is prompting the financial sector to reposition itself as an employer. This is of particular importance for workforce planning and development, accounting for aspects such as the impact of digitalization and a multigenerational workforce on talent retention and leadership behavior. We are expanding knowledge-transfer tools, fostering cross-divisional internal career paths, and implementing specific measures to maintain the motivation and employability of staff.
UN Sustainable Development Goals
In response to the economic, social, and environmental challenges our planet faces, the UN Sustainable Development Goals (SDGs) define global priorities and aspirations for 2030. On January 1, 2016, the world’s governments officially began implementation of this agenda at country level—the transformative plan of action based on 17 goals—to address urgent global challenges over the next 15 years. Deutsche Bank acknowledges that private-sector participation is needed to achieve the goals. Furthermore, we understand that the SDGs form a useful benchmark for corporations by defining and prioritizing the most urgent challenges for mankind to improve lives worldwide. Our license to operate will increasingly depend on our contributions to the SDGs.
The Paris Agreement on Climate Change (2015) is generally perceived to be a historical breakthrough in international climate protection policy. However, significant challenges still lie ahead. The targets included in the Paris Agreement will likely not be sufficient to achieve the 2°C goal. Moreover, diverging interests have complicated the implementation of international climate agreements in the past. Public and private-sector collaboration will be critical to promoting and financing a shift towards a low-emissions global economy and towards climate-resilient development “pathways.” As a global bank, we can make an important contribution to raising the capital needed to implement the Paris Agreement.
Trust and transparency in business conduct
How stakeholders view the value and role of banks is very important to the success of our business. In 2016, less than a third (32%) of respondents surveyed in the framework of the Edelman Trust Barometer believed the financial sector to be trustworthy (2015: 39%). At Deutsche Bank, the need for a higher level of transparency remains as important as ever. New regulations, such as the EU Non-Financial Reporting Directive (NFRD) and the UK Modern Slavery Act, aim to improve disclosure on sustainability aspects and foster responsible business behavior.