Deutsche Bank AG’s asset management arm, DWS Group tells investors that environmental, social and governance concerns are at the heart of everything it does and that its ESG standards are above the industry average.
But behind closed doors, it has struggled to define and implement an ESG strategy, at times painting a rosier-than-reality picture to investors, according to its former sustainability chief and internal emails and presentations seen by The Wall Street Journal.
DWS’s experience underscores the difficulties and pressure money managers are facing to plant their flag in the hottest corner of the fund market, where, according to Morningstar data, investors are putting $3 billion a day.
Frankfurt-based DWS said in its 2020 annual report released in March that more than half of its assets under management—€459 billion, equivalent to $540 billion—have run through a process it calls ESG integration. In such a process, companies are graded on ESG criteria, which helps inform fund managers if the investment faces any risks related to these standards.
According to an internal assessment of the company’s ESG capabilities a month earlier, "only a small fraction of the investment platform applies ESG integration," adding there is no quantifiable or verifiable ESG-integration for key asset classes at DWS.
"As we are already quite late to the game, we need to set our ambition now and start the transformational process," said Oliver Plein, head of ESG products at DWS, in a Feb. 1 email accompanying the assessment.
The same month, Desiree Fixler, DWS’s sustainability chief, made a presentation to the executive board saying the firm had no clear ambition or strategy, lacked policies on coal and other topics and that ESG teams were seen as specialists rather than being an integral part of the decision-making, according to the presentation, which was reviewed by the Journal.
That contrasted with what DWS told investors in its annual report: "As a firm, we have placed ESG at the heart of everything that we do," it said. It also said it had made meaningful progress during 2020 to meet its ambition of being a leading ESG asset manager. Among the progress, it said, was the hiring of Fixler in August for the new role.
Fixler was fired on March 11, one day before the annual report was released. Ms. Fixler said she believes DWS misrepresented its ESG capabilities.
She said revisions and verbal objections she had made to the annual report before publication, including how many assets were under ESG integration, were never included. She said she was fired because she was too vocal about problems and has filed an unfair dismissal case against DWS in a labor court in Germany.
"As chief sustainability officer, as a proponent of ESG, how could I not speak up on wrongdoing," she said in a statement sent to the Journal. "Posturing with big statements on climate action and inclusion without the goods to back it up is really quite harmful as it prevents money and action from flowing to the right place."
DWS, which is majority owned by Deutsche Bank but maintains its own stock listing, said in a statement that it has always been transparent to investors and clients, and it stands by its annual report, which was audited by KPMG.
It said that standards for defining ESG assets are constantly evolving, and that DWS has been seen by the market as being more conservative than most of its competitors in the definition. It said the sustainability office led by Fixler didn’t gain the expected traction on creating or showing an action plan.
"We do not wish to attack Fixler in any way. We wish her the best for her future," a spokesman said, adding that Fixler filed a complaint after she left, but that an investigation by a third-party firm found no substance to her allegations.
ESG investing is growing fast. Assets in ESG funds surpassed $2 trillion globally in the second quarter, almost tripling in three years, according to Morningstar.
Investors are attracted by the idea of making money while curbing environmental damage and improving diversity and working conditions at companies.
DWS said ESG funds accounted for 40% of the company’s €21 billion in net inflows in the first half of this year.
Fixler arrived at DWS to make it a global leader in ESG asset management. She had been a managing director for impact investing at ZAIS, an alternative investment manager, and before that worked in structured credit products at Merrill Lynch and JPMorgan Chase & Co.
After she arrived at DWS the summer of 2020, she ran a diagnosis on the firm’s ESG policies. One question she had in mind was how Wirecard AG, a German payments-service provider that went bankrupt in an alleged fraud and money-laundering scandal, ended up in an actively managed ESG fund, where the G stands for governance.
Fixler saw Wirecard had a B score—the second highest—in business ethics up to June 2020, the same month it collapsed after admitting that more than $2 billion of its cash on its balance sheet actually didn’t exist.
Two months earlier, an auditor hired by Wirecard released a report saying it couldn’t verify the existence of the cash. The company commissioned the report in October 2019 after a series of Financial Times articles aired allegations of accounting fraud, falsification of documents and money laundering. Singapore authorities had also launched an investigation into the company.
Still, Wirecard’s ethics score was kept at B until it sank to F in July.
Several DWS funds invested in Wirecard, including its flagship Deutschland fund. DWS cut exposure to Wirecard following the April report, but only fully exited it days before the collapse. DWS claimed a €600 million loss in Wirecard’s bankruptcy court case.
The DWS spokesman said its investment decision was based on proper assessment and information at the time, and that none of its ESG-dedicated funds held Wirecard shares after the auditor report came out.
Wirecard’s ESG score, he said, was based on industry-standard data from third parties.
Wirecard’s score was set by what the company called its smart ESG integration tool. DWS said in a public sustainability report that its groundbreaking process would take timely controversies into account.
Fixler found other problems with the smart ESG integration, including that it failed to identify companies drawing revenue from coal and fracking, according to a presentation she made to the executive board Nov. 4.
On Nov. 18, at DWS’s annual meeting, Chief Executive Asoka Wöhrmann called the process a pioneering approach that "goes far beyond previous industry standards."
Email exchanges among other DWS executives show they agreed with Fixler on some points.
"We do risk management, and we do it badly," Francesco Curto, global head of research, said in an email to Stefan Kreuzkamp, DWS’s chief investment officer on Jan. 20, referring to ESG integration.
In a statement, Curto said he was raising problems that are common to the entire industry, and that recognizing it is evidence of the firm’s efforts to improve.
Further problems were listed in a February internal assessment led by Plein, head of ESG products at DWS, including that ESG risk management wasn’t being widely applied.
In a statement Plein said the assessment also mentioned several positive points, including a high number of core and innovative ESG products and its pledge to decarbonize investment portfolios.
In a Feb. 16 presentation to Wöhrmann and other top executives, Fixler said DWS, not ranked in the top 10 in Europe on ESG by most industry rankings, could get into the top three in two years, but that it would require major and fast change at the company.
In the internal memo announcing Fixler’s departure, DWS said "while progress has been made, the executive board has taken the position that the firm needs to gain even more traction in this space."