(Bloomberg) — At the start of this year Asoka Woehrmann was sitting pretty. The boss of Deutsche Bank AG’s asset-management arm, DWS Group, had hitched his firm’s wagon to the surge in investor demand for all things ESG — promising to make “sustainability the core of what we do” — and his rebrand was paying off. Client money was pouring in and DWS’s share price was rocketing. The hunt was on for big acquisitions.
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Behind the scenes, however, the green paint job was already starting to fade.
On a February conference call, DWS Chief Investment Officer Stefan Kreuzkamp warned of a “frozen middle” at the firm, referring to the many fund managers who were dubious about “environmental, social and governance” investing and weren’t engaged in doing it. DWS sustainability head Desiree Fixler was voicing similar concerns, prompting Woehrmann to tell her angrily, “Everybody hates you,” according to Fixler’s recounting in an email to DWS’s chairman.
It was the start of a chain of events that included Fixler’s March firing, her emergence as a whistleblower and a three-pronged investigation by the U.S. Department of Justice, the Securities and Exchange Commission and Germany’s BaFin into her allegations that DWS overstated its ESG capabilities. Woehrmann’s future is likely to be determined by where these probes end up.
For fund managers everywhere — greedily eyeing an ESG market that’s expected to surpass $50 trillion of assets under management by 2025 — this is the first real test of how aggressively regulators will crack down on any “greenwashing” accusations against their industry.
For Deutsche Bank and DWS, the stakes are higher still: Anything that hinders their involvement in the ESG gold rush would be bad news indeed.
DWS has said repeatedly that it did nothing wrong, and money is still flooding into its funds, suggesting clients are unfazed by the furor. But conversations with more than a dozen current and former DWS and Deutsche Bank staff, and other interested parties, indicate it wasn’t only Fixler who was asking awkward questions on ESG — as the Kreuzkamp comments show.
While her claims only became public in August, red flags on DWS employees’ green commitment were being raised at least a year ago. Morningstar, a company that rates investment funds, spoke with several DWS fund managers in late 2020, leaving it unconvinced by the firm’s seriousness about ESG, people familiar with the situation say.
Apart from Fixler, everyone who spoke for this article wanted to remain anonymous when discussing private company matters. A DWS spokesperson said: “We reject the allegations of our former employee and cannot comment further given the ongoing labor law matter.” Fixler has sued the firm for wrongful dismissal.
Changing Fortunes
It’s been a rapid change in fortunes for Woehrmann, a trusted lieutenant of Deutsche Bank Chief Executive Officer Christian Sewing. The negative news flow around the firm has annoyed the bank’s top brass, meaning the DWS boss can ill afford another misstep, according to people close to the German lender.
Woehrmann was parachuted into the DWS job in 2018, soon after the asset manager’s poorly received initial public offering. With investors withdrawing billions of euros from its funds, the Deutsche CEO needed someone who could create a compelling growth story. Woehrmann had been CIO of DWS until 2015 before Sewing hired him to run Deutsche Bank’s German retail operations, where he impressed. He seemed the perfect choice.
Back at DWS, Woehrmann quickly stemmed the outflows and morale improved. As part of his revamp he identified ESG as a critical business: Given the market’s vast potential, any asset manager with lofty ambitions needed to be on that bandwagon. Shareholders responded warmly, and DWS — 80%-owned by Deutsche — became a source of stability for Sewing during his own turnaround job at the parent bank.
Things went so well that DWS got the green light to pursue transformative M&A. Large rivals such as Amundi SA and Goldman Sachs Group Inc. have been snapping up European asset managers, and Sewing wants DWS to be hunter rather than prey in a consolidating industry.
Heartened by his early successes, Woehrmann’s sustainable reboot went into overdrive. The 2018 annual report mentioned ESG 15 times; the next year it was 65 times. It was 712 mentions in 2020, when ESG products accounted for 30% of DWS net money inflows, and ESG assets under management swelled by a third.
Internally, though, not everyone was persuaded by the green tilt. After its chats with DWS fund managers late last year, Morningstar gave the firm a “basic” ESG grade — in the bottom half of its rankings — in part because of a call with one key portfolio manager who was dismissive of ESG. It was a nasty surprise for DWS, and sparked internal debate.
“DWS wasn’t among the first to join the ESG party and, when they got in, perhaps they made some public statements that embellished the reality,” says Hortense Bioy, global director of sustainability research at Morningstar. “But DWS isn’t alone and until recently all large fund companies had portfolio managers who were reluctant to embrace ESG considerations or even rejected them.”
Alone or not, Fixler’s allegations have put DWS squarely in the sights of regulators. The former group sustainability officer, whose DWS contract only started six months before Woehrmann sacked her, says the firm’s “ESG integration” process — a way of screening investments — was being ignored lower down the organization.
She also questions the firm’s official screening tool, known as the DWS ESG Engine. DWS says the engine’s huge array of data lets all investment managers and analysts check ESG risk exposures at any time, but Fixler says the data are too backward looking. As a result, she claims the ESG integration label attached to investment products wasn’t reliable.
Green Propaganda?
On March 12, the day after her firing, DWS published its yearly results, labeling roughly half its assets under management as “ESG integrated.” According to the whistleblower, the figures were ESG “propaganda.”
Woehrmann hired Fixler from New Jersey-based ZAIS Group — an alternative credit manager where she was head of ESG and impact investing — to make DWS a leader in sustainable funds. It has indicated she was dismissed because she wasn’t delivering on that mandate. “The executive board has taken the position that the firm needs to gain even more traction in this space,” it said in a March memo on the sacking. Fixler, a New Yorker, subsequently took her claims to the relevant authorities.
Claire Peel, the DWS chief financial officer, says the firm has been focused recently on talking to clients to put its side of the story. Judging by flow data, those talks are bearing fruit.
Last month DWS reported a spike in new customer money. The greenwashing accusations have left “no material impact” on its business, Peel said on a recent conference call. Equity analysts are talking positively about the firm again; Citigroup Inc.’s point out that sustainability rules are subjective, so they “struggle to see how regulators can hold DWS to account” even if it did something wrong. The asset manager’s senior staff are quietly optimistic that the firm will emerge relatively unscathed.
But some investors aren’t yet convinced. The share price still hasn’t recovered from its August plunge, and sits more than 12% below where it was before the probes became public. In an industry where the biggest beasts are searching for juicy M&A targets, the relative strength of your market value matters.
At DWS the strategy now is to sit out the controversy, with Woehrmann largely keeping out of the limelight. Everything depends on whether the DoJ, SEC and BaFin decide there’s a case to answer.
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