You would be surprised to find someone interested in sustainable investment who is unaware that DWS has dramatically dismissed Desiree Fixler. She is a Group Sustainability Officer at DWS, a leading German asset manager, and was dismissed after eight months of employment. Fixler has a broad background in investment and investment banking, bringing extensive experience to DWS, and her sudden dismissal after such a short tenure became even more surprising.
DWS, led by CEO Asoka Woehrmann, has a market capitalization of $ 7.4 billion. This is compared to French rival Amundi for $ 15.2 billion and British rival Legal & General Investment Management for $ 23.4 billion. Deutsche Bank (DB), Germany’s well-known flagship bank, owns 80% of DWS. DB has a market capitalization of $ 26.6 billion and is ranked 76th.NS in the world. The top two banks are JPMorgan Chase at $ 471 billion and Bank of America at $ 341 billion. Finland’s Nordea Bank has a market capitalization of $ 52.6 billion, about twice that of DB. In terms of GDP, Germany is the fourth largest country in the world (after the United States, China and Japan).Its GDP is 14 times that of Finland, which ranks 44th.NS..
DWS leaked internal notes to the press, thereby exposing Mr. Fixler to public glare. The dispute between DWS and Mr. Fixler is based on her concerns about the legitimacy of the company’s claim as to how much of its assets under management deserves an “ESG” or green label. The event only deepens the debate, and others such as Tariq Fancy and Ken Pucker question how legal ESG investment is today.
Fixler’s story now spreads throughout the press from publications such as The Wall Street Journal, Financial Times, and SPIEGEL International on August 1, 2021 and August 25, 2021. As a result of Fixler’s claim, BaFin (German Financial Supervisory Authority) is currently investigating DWS’s marketing claims. In the United States, the Securities and Exchange Commission (SEC) and the Department of Justice (through the Attorney General of Brooklyn) have also launched an investigation. Let’s take a look at their conclusions. Meanwhile, this controversy between DWS and Fixler has certainly caught the attention of asset managers around the world selling “green” products on all labels.
I have professional journalists and government investigators talk about DWS / Fixler. What I want to do here is to take a step back from a particular situation and look back at some general principles of ESG / sustainable / green / impact fund building and marketing by any name. To that end, I saw a fascinating interview with Fixler on Robert Rubenstein.
Then I contacted her and asked if she would talk to me. She kindly agreed to do so and we had some conversations. From these, we have created a brief list of the seven principles of ESG investment. We hope these will help asset managers who build and market these products, clients who buy them, and regulators who are interested in preventing greenwashing in the asset management industry.
Principle 1: Have clear standards for what ESG products mean
It all starts here. Today, there are no regulatory or industry practices standards for what ESG products mean. (The EU’s Sustainable Financial Disclosure Regulations by Articles 8 and 9 Funds seek to address this.) Therefore, it is important for asset managers to be very clear: how they Defining ESG product. The client can determine if it is an ESG product. Is it simply based on the exclusion of sectors such as alcohol, oil and gas, thermal coal and tobacco? Is it based on companies in all sectors considered “best in class” in the industry, with or without exclusions? Is the focus on solving specific problems such as climate change, or supporting diversity, equity and inclusiveness? If so, what indicators are used to prove the purpose? The key here is that these metrics are based on trusted data sources and can be validated independently, not the metrics that portfolio managers can game to display numbers correctly. It is important that these criteria are clearly defined, clearly communicated, communicated transparently, and not hidden deep within the fund-provided prospectus.
Principle 2: Carefully select ESG data vendors
All ESG products are, by definition, based on ESG data. Obviously, what data is relevant depends on how your ESG product is configured. Data can be generated by the investment company itself through its own research, purchased from ESG data vendors, or a combination of the two. There are many ESG data vendors to choose from. Some are well known and have been around for a long time. There are more and more new ones that may use different approaches, such as AI and big data. For new ones, it is important to carefully due diligence the methodology and understand how it is being validated. Ideally, you need to get feedback from existing customers.
Principle 3: Develop a rigorous process on how to aggregate these data
It is well known in the investment industry that there is considerable variability in the way these vendors evaluate companies, both in terms of overall evaluation and their components. This is not surprising given that they use different technical methodologies and have different social origins. It’s also not necessarily a bad thing, as you can gain insights from the presence of variance. However, this means that an advanced approach is needed to aggregate the ratings. Do not average just two or three overall ratings as they can hide potential risks. Instead, you need to review the more detailed data that makes up the rating and develop your own methodology for the rating that you build for your investment decisions.
Principle 4: Have an integrated process for building ESG products
Building a legitimate ESG product cannot be done by having an island of lonely people in sustainability features and giving marketers a language to submit financial prospectuses. The important thing is that the portfolio manager, who makes the final asset management decisions, needs to be involved. A product is green because the portfolio manager who builds the product has access to ESG data is not the same as the portfolio manager says. second hand These data when building it. The portfolio manager must be accountable for both the fund’s financial performance and ESG performance. She or he also answers questions about how the fund was built, sources of ESG data, how they were aggregated, decision rules for determining which stocks are in and out, etc. You need to be able to respond to the concerns raised. Of the fund.
Principle 5: Make sure you are telling the real story
Every ESG product has a claim on how to make the world a better place. It is also customary to see asset managers uphold their own climate change mission statement, the principles of diversity and inclusiveness, or the general situation …