DWS has been accused of “a new form of greenwashing” after its revised sustainability bonus scheme only captures “irrelevant corporate metrics”, according to a new Greenpeace report.
The research, titled DWS: Big Bonuses for Greenwashing, found the sustainability remuneration schemes for top management were now linked to “plating trees and picking up litter”, instead of introducing binding investment guidelines that comply with international standards such as the Paris-Aligned Benchmarks (PABs).
The German asset manager's current sustainability remuneration scheme – established in 2021 – was designed to remove conflicts of interest which caused former CEO Asoka Woehrmann to step down in 2022.
One of these conflicts was a ‘dedicated ESG AUM’ key performance indicator (KPI). Between 2019 and 2020, ESG AUM grew from €9.7bn to €93.6bn through the relabelling of funds to ESG.
A separate AUM category labelled ‘ESG specific’ grew by 34% in 2020, 10 times faster than the growth rate for the group’s total AUM.
Meanwhile, a third category – ‘ESG integrated’ – grew by 70% to €552bn and eventually led to whistleblower and former DWS group sustainability officer Desiree Fixler going public.
Corporate engagements, another key metric, grew from 250 in 2019 to 454 a year later.
Woehrmann's total remuneration amounted to €6.9m in 2021, according to the report, five times the average for SDAX-listed companies.
“Although the revised 2021 bonus system no longer features the appalling incentive to inflate the number of ‘ESG-labelled’ funds, it remains an equally flagrant form of greenwashing,” Dr Mauricio Vargas, finance expert for Greenpeace Germany said.
“While sustainability aspects figure prominently in the remuneration requirements for top executives, in keeping with the recommendations for implementing a credible sustainability strategy, the company’s environmental goals still lack relevance and effectiveness, rendering it impossible for the objectives to have a substantial impact.”
Under the new metrics, 5% of the remuneration is linked to ESG net inflows, the sustainability rating of its products, corporate social responsibility activities of its employees and integrity and speak-up culture.
“The company has lowered the hurdle for achieving high targets in implementing the sustainability strategy, making it that much easier for the head of DWS to secure record salaries,” Vargas added.
Alex Edmans, professor of finance at London Business School, said the issue of linking ESG goals to CEO pay goes beyond DWS into the corporate world in general.
“These concerns apply beyond DWS to ESG-linked pay in general as companies have great flexibility to manipulate the numbers, and beyond CEO pay to ESG targets in general,” he said.
“The FT business school league table now includes ESG content in their ratings, causing some schools to quadruple their reports of ESG by labelling content ‘ESG’ when it is anything but.”
Greenpeace said DWS should change its remuneration structure to one that complies with the PABs, to “implement climate protection policies that require science-based and ambitious targets not restricted to internal company parameters”.
A DWS spokesperson said: "DWS's compensation system is designed to promote and implement the long-term strategy and sustainable development of DWS. We report regularly and transparently on the compensation of the executive board in the DWS Compensation Report.
"The remuneration report of DWS also explains the composition of the remuneration and the respective target achievement rates of the managing directors. The remuneration includes various group targets and individual performance indicators that are intended to ensure the long-term successful development of the company. This also includes ESG targets."
It added its parent company Deutsche Bank should “assume responsibility” for the misguided incentive schemes.
In September, DWS paid $19m to settle with the Securities and Exchange Commission following an investigation into their greenwashing practices.
The German asset manager has been attempting to rebuild its reputation following the scandal. In February, current CEO Stefan Hoops said the asset manager had been used as a “public guinea pig” following the investigation into the group’s sustainability practices.