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The former DWS employee who claims the German asset manager overstated its credentials on environmental, social and governance investing has warned others to “dial down the propaganda and rhetoric” or face potential mis-selling claims from investors.
Desiree Fixler, the asset manager’s former head of sustainability, alleged the firm misrepresented its ESG capabilities in its 2020 annual report. Her action triggered investigations by the U.S. Securities and Exchange Commission and German regulator BaFin.
“This incident with DWS
DWS,
has rippled through the market and is a wake-up call to approach ESG more accurately and scientifically and dial down the propaganda and rhetoric,” Fixler told Financial News.
“Even though we have a rallying bull market making lots of portfolios look rosy right now, there is still potential for regulatory action and lawsuits across the industry,” she said.
“Europe is very focused on mobilising capital into sustainable investments. The US is, at this point, very focused on protecting investors and focused on preventing the mis-selling and misrepresentation to investors.”
Fixler, who was hired by DWS in 2020 as its first sustainability officer, was fired by the asset manager in March.
She says she objected to DWS’s annual report, which stated the asset manager “placed ESG at the heart of everything that we do” and that more than half of its €793bn in assets under management were invested using ESG criteria.
In an interview with the Wall Street Journal in August, Fixler said she made a presentation to the DWS executive board ahead of the annual report being published, 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.
DWS has rejected the allegations made by Fixler and said it “stands by its annual report disclosures.”
Fixler said asset managers should treat their ESG statements in the same way they report financials.
“If executives start to realise that ESG mis-statements may be considered securities fraud, they will think twice about doing it,” she said.
“They will have to plough more resources into doing what they say they are doing or at least stop publishing so much misleading propaganda.”
News of the DWS probes has put the asset management industry on high alert over accusations of greenwashing.
“The reputational risk of being found to not walk the talk would be too great for most to stomach blatantly not doing what they say they are doing,” one investment head told FN in August.
Policymakers have already taken steps to curb so-called greenwashing among asset managers, with the introduction of the Sustainable Finance Disclosure Regulation in April designed to help investors decipher which investment funds employ the highest ESG standards.
Also read: Ex-BlackRock sustainable CIO on how ESG risks turning into a mis-selling scandal
SFDR requires asset managers to sort funds into different categories — Article 6, Article 8 and Article 9 — based on their sustainable investment approach.
Despite efforts to address mis-selling, Fixler said better definitions on ESG are needed.
“Companies recognise ESG is a hot topic, and without a clear rule book and standardised definitions, the topic can be exploited for marketing purposes,” she said.
“There’s still different interpretations on the new SFDR rules, what qualifies as Article 8 and 9.”
The comments come as scrutiny intensifies on the sustainable investment fund sector, which saw assets grow to $2.24tn globally at the end of the second quarter, according to Morningstar.
Tariq Fancy, the former sustainable investing chief investment officer at BlackRock
BLK,
has become one of the sector’s harshest critics, and has likened ESG to “selling the public a wheatgrass placebo as a solution to the onset of cancer”.
Fancy claims some of the issues sustainable investment funds are trying to tackle, notably climate change, cannot be addressed without intervention from government and regulators. Ploughing money into sustainable funds is a “dangerous placebo that harms the public interest”, he claimed.
However, Fixler said there was still a role for investors to play.
“The public sector has to lead here. Without a doubt, we need more guardrails,” she said. “It just needs more regulation, more data-based reporting and more focus on actual impact. There is a role for capital markets to power innovation.”
