Suspicion of “greenwashing”: Investigations against Deutsche Bank fund subsidiary

The US stock exchange regulator is apparently investigating the fund provider DWS. It is about the suspicion that the subsidiary of Deutsche Bank has been fraudulent in labeling “green” investments.

According to media reports, the asset manager DWS, the fund subsidiary of Deutsche Bank, has dealt with criteria for sustainable investments too carelessly. The US Securities and Exchange Commission and other authorities have therefore started investigations, according to the “Wall Street Journal”.

Investigations by the SEC and the Brooklyn federal prosecutor are in the early stages, it said. Deutsche Bank, DWS, the US Department of Justice and the SEC initially declined to comment.

BaFin is also investigating

According to the “Wall Street Journal”, the allegations go back to the former head of the sustainability department at DWS. She is of the opinion that DWS has exaggerated the extent of its commitment to sustainable investments.

As the news agency dpa-AFX reports, the Federal Financial Supervisory Authority (BaFin) is also investigating whether the asset manager has incorrectly reported its sustainable investment products. At the beginning of this year, the SEC established a task force to investigate misconduct in offers for sustainable investments.

Funds that advertise the advantages of their investments in environmental protection, social standards and good corporate governance have recently experienced a boom. According to information from Morningstar, a rating agency for fund companies, 51 billion dollars flowed into “green” investment products in the US alone last year. According to the SEC, investors need to be better informed about these products.

Hard blow for DWS and Deutsche Bank

Deutsche Bank and its fund subsidiary are hard hit by the allegations, as they have advertised particularly intensively with the topic of sustainability and want to expand the business in the coming years. In addition, Deutsche Bank in the USA has been targeted repeatedly by the US supervisory authorities in recent years, for example because of inadequate risk management.

The shares of DWS and Deutsche Bank react with heavy losses to the allegations. The loss in market value at DWS is around one billion euros, Deutsche Bank stocks come last in the DAX. The reaction of the stock exchange is a clear sign of how seriously the players in the financial markets assess the situation, especially for the fund provider.

Many fund companies try to take advantage of the trend towards ecological investments by marketing their products with the concept of sustainability. So far, however, there are no standardized criteria for what “ecological” or “sustainable” should actually mean in financial products. The subject of “greenwashing” – that is, the criticism of an only ostensible orientation towards climate or environmental protection standards for image reasons – is becoming increasingly important.

Demand for clear standards

The suspicion that so-called “green” investments are not always serious is not new. In order to differentiate between sustainable and less sustainable companies when investing, so-called ESG data are used, for example. The abbreviation stands for Environment (E), Social (S) and Governance (G), i.e. corporate management.

Industry observers have long complained that these criteria are not consistently taken into account. In order to prevent fraudulent labeling through “greenwashing”, consumer advocates therefore demand uniform standards and guidelines for “green” investments.

Klaus Müller, board member of the Federation of German Consumer Organizations (vzbv), demands that the federal government advocate clear standards and definitions: “Systems should only be described as sustainable if they make a measurable contribution to sustainability goals and are more than mere advertising promises.”

Financial supervision suggests rules

A few days ago, the German financial regulator BaFin published a draft for new rules. It contains specifications for the future design of financial products so that they can be described as sustainable and sold accordingly. “If it says ESG, there must also be sustainability,” explained BaFin Executive Director Thorsten Pötzsch.

Among other things, the draft stipulates that funds may only be advertised as sustainable if they invest at least 75 percent of their investments sustainably.