ESG and DAX reform: step backwards instead of modernization

Philine Erfurt Sandhu

The author is a lecturer at the Berlin School of Economics and Law.

(Photo: press photo)

A historic reform of the Dax comes into force on September 20. After more than 30 years, the leading index is increased from 30 to 40 groups. After the scandal surrounding the Dax company Wirecard, a comprehensive change was urgently required.

Deutsche Börse commented on its decision that the new index is now ideally positioned for the future. But what kind of modernization are we talking about here? And from what future?

The new criteria for inclusion in the index are purely economic in nature: the market capitalization of the freely tradable shares and a positive Ebitda for the last two annual financial statements.

According to the lessons from Wirecard, the financial reporting requirements have also been tightened. However, this reform does not involve any requirements on the environment or on social issues and – with the exception of the obligation to set up an audit committee – on good corporate governance (ESG).

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The criteria for reducing financial risks in this reform are too narrow. The World Economic Forum’s 2021 World Risk Report highlights that six of the ten biggest risks of our time are sustainability risks. The floods and fires in Europe this year brought the dangers of the climate crisis to our doorstep, a global pandemic is weakening entire industries and economies. So why did you not use the reform as an opportunity to link inclusion in the Dax to ESG criteria?

The addition of sustainability aspects would change the composition of the Dax significantly. Suppliers, suppliers of raw materials, aviation and the automotive industry are particularly threatened by the climate crisis. Should companies like RWE, Heidelberg Cement and Volkswagen be the figureheads of the German economy in the face of the climate crisis? Is it sustainable that Airbus and Porsche will move into the Dax 40?

The chance for modernization was wasted

With the expansion of the Dax, significant setbacks have also been recorded with regard to the social and leadership aspects. After the increase in the proportion of women has been almost unbearably slow in recent years, it is even falling again with the expansion of the Dax.

Almost a quarter of the board members are now women-free zones again. This is not a modernization, but a retraditionalization. In addition, there is a decreasing influence of the employee representatives. Only two of the ten new companies have equal participation.

With the redesign of the Dax, the course could have been set for future-oriented business. Sustainability in the financial system – Sustainable Finance – is an effective key to the great transformation that has to be achieved. This chance for modernization in terms of future viability was wasted.

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