Biggest German asset manager DWS publishes coal policy: halfway there

Copublished with Urgewald

Paris, April 7th, 2023 – The Deutsche Bank subsidiary DWS published its long overdue coal policy (1). The asset manager announced a coal exit by 2030 in EU and OECD countries and 2040 globally and introduced immediate investment restrictions for the coal sector. Reclaim Finance and Urgewald welcome this policy which puts an immediate end to DWS support for coal developers and now calls on the asset manager to take swift action against oil and gas expansion.

With its new coal policy, DWS has immediately outstripped its parent company Deutsche Bank, which had announced a rather disappointing update of its coal policy on March 2nd. Unlike Deutsche Bank, DWS has presented a set of rules whose strongest feature is the exclusion of companies developing new coal projects, along the entire coal value chain (2).

The end of any financial support for coal developers is a science based requirement to limit global warming at 1.5°C. As part of the publication of the IPCC synthesis report at the end of February (3), UN Secretary General António Guterres again and emphatically called for an immediate end to expansion in the coal sector as an important tool in the fight against climate emergency.

We welcome that the new DWS policy finally recognizes the need for asset managers to stop supporting coal expansion. The signal sent to the market is strong: companies developing new coal mines, plants or infrastructure are unacceptable investments today, as they go against climate science and a liveable future on this planet. We will monitor closely how this policy is applied and verify that coal developers like Glencore or Mitsubishi are not receiving any more support.

Julia Dubslaff, Finance Campaigner, Urgewald

DWS is excluding investments in companies that are still expanding in the coal sector. While DWS uses a strong definition of coal expansion, some loopholes remain because of the methodology used and therefore a list of excluded companies must be published regularly to ensure full transparency (4). To ensure the full credibility of its policy, DWS will have to confirm that some of the world’s most problematic coal companies, including Glencore and Adani, will be excluded from its portfolio.

According to the Coal Policy Tool, almost all German financial institutions currently do not exclude coal developers. DWS is only the second one to explicitly exclude most coal mine/plant developers after the exclusion applied by Allianz (5) as an asset owner and insurer.

DWS finally published a quite robust coal policy that is informed by the International Energy Agency net zero pathway and by climate science. But other significant German financial institutions keep supporting the unacceptable expansion of the coal sector. They must rapidly follow suit to align with best practices. With the climate crisis steadily tightening its deadly grip, Deutsche Bank and Allianz Global Investors must urgently catch up to stop supporting coal expansion.

Lara Cuvelier, Sustainable Investments Campaigner, Reclaim Finance

DWS has also committed to phasing out all coal investments by 2030 in EU/OECD countries and 2040 worldwide. DWS also states it will engage with coal companies that remain investable until these phase out dates and will demand by end 2025 transition plans for their exit from coal. Yet, the engagement process is weak and must be strengthened (6). Lastly, the investor also excludes companies that derive more than 25% of their revenues from thermal coal, which is an insufficient measure to exclude large and diversified coal players (7).

DWS will apply its policy to both its open funds and to funds under mandate, with an opt out option for clients. Yet, because of its passive products, the policy will not be applied to about a quarter of its assets under management (8). It is worth noting that DWS is calling on index providers to exclude coal developers from their indexes and is the first big asset manager to clearly say so publicly.

Contacts:

Helen Burley, International Media, Reclaim Finance, helen@reclaimfinance.org, + 447703731923
Lara Cuvelier, Campagner at Reclaim Finance, lara@reclaimfinance.org, +33 6 68 45 18 93

Notes:

DWS, Coal policy, April 2023. Full analysis and assessment available in Reclaim Finance’s Coal Policy Tool.
DWS includes the following activities in its definition of “coal developers”: companies that are building or investing in new or additional thermal coal mining, coal power or infrastructure projects, including some retrofit and acquisition of coal assets.
Intergovernmental Panel on Climate Change, AR6 Synthesis Report, 2023
The method used by DWS to identify expanding companies is unclear. DWS must publicly disclose the criteria used to identify companies with coal expansion plans, since data from providers such as Trucost or Urgewald’s Global Coal Exit List can differ a lot. These 2 databases are mentioned in DWS’s Q&A on its coal policy (page 2). The capital expenditure metric (capex) should not be used as the only criteria to assess if companies have coal expansion plans. In addition, the policy only immediately applies to new funds and it is unclear when it will apply to existing funds.
It is worth noting that Allianz does not apply this policy to its two asset management branches, Allianz GI and PIMCO. LBBW only excludes some coal plant developers and Commerzbank only for new clients, while the other ones do not even consider explicitly the exclusion of coal developers.
The adoption of robust coal exit plans should be mandatory and lead to automatic sanctions if companies do not adopt such plans. Sanctions should be implemented as soon as this year and lead to full exclusion of the companies that do not adopt such plans by 2024. The policy should also describe what should be in such plans to ensure robust coal exit plans that plan for the closure of coal assets. The briefing “How to Exit Coal” of Urgewald and Reclaim Finance can serve as a guideline.
DWS adopted a 25% share of revenues from coal, which is yet to be lowered. As such, companies like Aboitiz Equity Ventures or American Electric Power remain investable. Furthermore, the revenues metric, rather than a coal share of power generation, is misleading. Utilities such as First Energy or Guangdong Investment whose revenues from coal are less than 25% but whose coal shares of power generation are largely based on coal, fall through the cracks. Without absolute threshold values, diversified companies are not sufficiently covered by the policy. And for DWS, CEZ as, Duke Energy or Southern Co. remain investable. Robust absolute thresholds are set at 10 million tonnes of coal or 5GW of installed coal power capacity by Urgewald’s Global Coal Exit List.
The scope of the new policy is limited: physically tracked ETFs are not covered by the policy. Due to DWS´ strong offer of passive products, this means about a quarter of its AuMs (approx. 190 billion Euro) are not covered by the Coal Directive. Based on DWS Annual Report 2022.