Deutsche Bank subsidiary DWS has to pay $25 million to the US Securities and Exchange Commission. The accusation: greenwashing. Some experts are now advising investors to draw conclusions from this.
While the investigations against DWS are still ongoing in Germany, the US Securities and Exchange Commission (SEC) has already taken a big step further: it sentenced Deutsche Bank’s fund subsidiary to a million-dollar fine last night. The Frankfurters have to pay $25 million – because of inadequate money laundering controls and false information about “green” investments.
DWS cheated on ESG criteria
This is called “greenwashing” and means: DWS presented its fund products, which were advertised as sustainable, as “greener” than they actually were. So the ESG criteria were not taken very seriously. These criteria have established themselves as the standard for sustainable investments. ESG stands for Environment, Social and Governance.
The $25 million fine now brings an end to the investigations by the US Securities and Exchange Commission. So it’s no wonder that the Frankfurt fund house is relieved: “We are glad that we were able to complete these investigations.”
Whistleblower had a “gut feeling”
Desiree Fixler got the whole thing rolling. DWS once hired the American as head of sustainability. But her term of office was supposed to end during the probationary period. In October 2021, Fixler accused her former employer of greenwashing – that is, of systematically embellishing the information on sustainable investments.
Fixler also criticized the quality of the ESG data provided to portfolio managers as being too outdated. “I had a gut feeling that something was wrong,” she later explained. Today the whistleblower sits on the Sustainability Board of the British financial regulator.
“Greenwashing is not trivial offense”
Greenpeace financial expert Mauricio Vargas sees it as a success that greenwashing is finally having criminal consequences: “The high fine imposed by the powerful American financial regulator SEC against DWS clearly shows that deceiving consumers when it comes to environmental issues is not a trivial offense.”
Vargas calls on customers to draw conclusions: The penalty is a clear wake-up call to DWS customers, who must ask themselves whether they want to support this scandalous business practice with their money. “In particular, professional investors such as pension funds must check whether the lax approach to environmental issues at DWS is compatible with their principles,” said the Greenpeace expert.
Investors could demand money back
But private investors who themselves had invested in a supposedly sustainable DWS fund should now closely monitor current developments and check possible legal claims, recommends lawyer Claus Goldenstein, owner of the law firm of the same name. “In principle, it is possible to completely reclaim the money invested, including fund fees already paid, due to misleading advertising statements.”
In contrast, DWS points out that the SEC “did not identify any misstatements in its ESG order regarding our financial disclosures or the disclosures in our fund prospectuses.” This could make it more difficult for shareholders to sue.
Will investors avoid DWS?
But the fact is: Even without such lawsuits, the financial damage to DWS is enormous and goes far beyond the $25 million now imposed on the SEC. Even if the damage to the company’s image is difficult to quantify, institutional and private investors who would like to invest sustainably might prefer to invest their money in green products from other fund houses in the future. In fund houses that have so far managed without a greenwashing scandal.
In addition: In Germany, the Frankfurt public prosecutor’s office and the financial regulator BaFin are still investigating DWS. It is still completely unclear whether and, if so, how much a fine will be imposed. Against this background, the fund house is likely to be directly excluded from some tenders from clients of large investors.
BaFin under pressure to act after SEC fine?
The SEC’s fine of millions also puts the local financial regulator under pressure, as BaFin has also declared that it wants to take stricter action against greenwashing. To this end, it only defined a sustainable finance strategy in the summer to meet the increasing needs in the financial sector with regard to climate change, the environment, social issues and good corporate governance.
Rupert Schaefer, BaFin Executive Director for Strategy, Policy and Control, explains why greenwashing is so dangerous: “It destroys trust in the market for sustainable investments and harms investors.” In fact, the DWS scandal may have done the market for green investments a huge disservice.