An interview with Desiree Fixler, new VentureESG Chair — and ESG whistleblower
We are delighted to have brought on board Desiree Fixler as our new Chair of VentureESG. We spent some time talking to Desiree about her move into ESG and impact — from a traditional finance background, her most important learnings from a decade in this world, including from the DWS revelations, and her initial thoughts on how ESG is going to shape the private markets and VC.
Hannah Leach: Desiree, it is great to welcome you to VentureESG as our Chair. Obviously, many will have heard about you given your revelations about DWS’s overstated ESG-washing last year (see the article in WSJ), but we want to provide some more background for our community in any case. Let’s talk about your journey a little bit. Can you tell us about how you got into ESG given you have started off in fairly traditional finance.
Desiree Fixler: When I first started thinking about what we now call ESG and impact, I was working at JP Morgan in the structured credit group, and a friend of mine sent me a book called “Banker to the Poor” by Dr. Muhammad Yunus. This was the first time I heard about what was then called ‘socially responsible investing’. In the book, Muhammad Yunus makes a business case for the social impact around financial inclusion and I thought “Wow, I could securitize these loans and help bridge the funding gap”. I thought that for the first time I could use my Wall Street financial engineering skills for something good and that was my transition into impact investing way back in 2005. I worked with BlueOrchard (now part of Schroders) and the Dutch Development Agency, FMO, and we issued Microfinance CLOs (collateralized loan obligations) with the double bottom line objective of financial returns plus social impact. That was the beginning of my journey into this world.
Hannah Leach: What would you say were the most important things that happened in the last decade in which ESG and impact became more widespread?
Desiree Fixler: The first huge accomplishment is that there is now full-scale market awareness and large-scale market acceptance of the importance of sustainable finance. Retail and institutional investors increasingly want to invest in products and companies that can make a positive contribution environmentally and or socially or are at least climate neutral.
And with this, sustainability regulation and standardized company reporting requirements are in development globally which will greatly help investors make more informed investment decisions. A good chunk of the public sector and corporate world have committed to decarbonize and have begun to publish action plans. But we have to stay the course to ensure there’s follow through on these commitments and shareholder and community activism is integral here, which thankfully is on the rise. In my opinion these are the greatest accomplishments of the last 10 years.
Hannah Leach: Would you say that the mainstreaming of these concepts you describe above has the potential to also have negative consequences in some instances?
Desiree Fixler: Yes, today ESG can mean everything and it can also mean absolutely nothing. ESG washing and greenwashing are real problems as it can be used very effectively just as a marketing tool. Companies have ratcheted up the ESG rhetoric, often with “bold” commitments on net zero or diversity. And with that, the offering of ESG products and services has gone into overdrive. Without standardized definitions and sustainability reporting requirements, there’s insufficient quality controls and a great deal of mislabeling in the market. According to Bloomberg, we’ve mobilized $35 trillion into ESG investing strategies but what have we tangibly achieved impact-wise?
Are we now on a better temperature pathway? Not yet. Is there more social and environmental justice in the world? I don’t think so. We have been successful in raising awareness, setting some policies, drawing up actions plans but we don’t have the net positive outcomes yet. But on a positive note, I’m really pleased about the ISSB initiative to set sustainability reporting standards and about the SEC climate risk disclosure proposal.
Johannes Lenhard: This leads me perfectly to the next question: Is this fear of the dark side, of over-promising and extensive usage of false rhetoric, one of the things that drove you to speak up at DWS?
Desiree Fixler: Yes, it’s really an unbelievable story. DWS released vastly inflated ESG AUM and misstatements about the firm’s ESG risk assessment system. I witnessed the contradiction between what was said and documented internally vs what was said and documented in the public domain. In my mind, this material misrepresentation was a clear regulatory violation. As the Group Sustainability Officer, how could I not speak up? Look, the vast majority of folks at the firm tried to do the right thing. It was just down to a handful of senior execs that decided to take a shortcut and exploit ESG. In the end and after a big market cap loss, DWS did mark down their ESG AUM by 75% and abolished the flawed ESG risk system (see the FT’s recent reporting and the DWS 2021 Annual Report).
But I think this case has been an inflection point in the asset management industry. I’m hoping some good will come out of it. I think it’s taken some of the hot air out of an inflated market. And it’s led to many a firm asking some crucial questions such as «Are we delivering on our public statements and commitments? Are we appropriately labelling our ESG products?»
Johannes Lenhard: Let’s shift from the public to the private markets, the focus of VentureESG. What are you most interested in when it comes to ESG and private markets, compared to, in contrast to or learning from the public markets?
Desiree Fixler: A start-up’s game-changing technology that can help us do things better or make things more accessible. New technology to decarbonize, new technology around financial inclusion, bio tech, education, data privacy as examples.
When it comes to learning from the public market, start-ups and growth companies need to be aware and probably prepare for the ESG policies and disclosures required for public companies. The SEC recently came out with climate risk disclosure proposals. Europe continues to go live with their sustainability regulations. LPs, moreover, increasingly want sustainability value and principle alignment across all their asset classes, including their venture and growth equity investments.
Hannah Leach: What do you see as the biggest challenge and or opportunity in VCs adopting ESG?
Desiree Fixler: The initial challenge is to overcome the skepticism that ESG is a box-ticking and a slightly irrelevant, costly burden. That’s why VentureESG is so important to spread awareness about a practical version of ESG for the VC and startup market. It’s to ensure this community has access to information and advice on considerations to best run a company in this changing world. To establish good practice at the beginning. It’s not here to dampen the crazy factor or disruption ambition. Guidelines around independent board members, diversity, data privacy, fair labor practices, AI ethical considerations are there to help optimize the business and also to ensure full access to the capital markets. We all know those startups that went off the rails with governance and culture issues. So, it really would not be a good idea for any company to repeat that.
Johannes Lenhard: Yes, I really like this. Particularly at this point in time, when everyone is really just getting started and there’s a lot of learnings from the public markets. Mistakes will be made — and we need to be honest about that. For our last questions, let’s go slightly beyond the bounds of what VentureESG is at the moment. Who do you think are the stakeholders that will need to move forward with this most over the coming months and years in the private markets and VC?
Desiree Fixler: I would say the start-ups and the VCs. I believe much of the LP community is well versed in sustainability already. I would also note that I believe we can do a much better job working with the public sector — development finance and government agencies — in everything from research, funding, regulation, and the offtake of the product or service to push the ESG agenda forward.
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