Request Free Trial

Pressure grows for better ESG regulation following DWS raid

By Madeleine Saghir

The resignation of DWS’s chief executive, following allegations the asset manager provided misleading information about ‘green’ investments, has further highlighted the severity of these issues.

Global regulators are facing renewed calls for better regulation to tackle greenwashing in the wake of events at asset manager DWS.

On Tuesday, the Frankfurt offices of DWS, which is majority-owned by Deutsche Bank, were subject to a police raid as part of a probe into those allegations. On Wednesday, chief executive Asoka Woehrmann announced he would step down from his role on 9 June.

In a statement, Woehrmann said the allegations “have become a burden for the company, as well as for my family and me”, adding: “In order to protect the institution and those closest to me, I would like to clear the way for a fresh start.”

German financial watchdog BaFin and the US Securities and Exchange Commission separately launched investigations into DWS last year, following allegations from DWS former group sustainability officer Desiree Fixler. Fixler previously suggested that in its 2020 annual report, the company had made misleading statements on how ESG criteria were applied to its investment activities.

“We have continuously co-operated fully with all relevant regulators and authorities on this matter and will continue to do so,” DWS said in a statement on Tuesday reported in the Financial Times.

Regulatory ramifications

DWS is not the only company to have faced scrutiny from regulators recently. Last week, a subsidiary of BNY Mellon received a $1.5mn fine from the SEC following allegations that it had misstated and omitted information about ESG assessments for assets held in mutual funds that it managed or advised.

The SEC has since proposed to introduce new rules for more specific ESG disclosures for investment managers and advisers, and to update existing rules about what names firms can give themselves.

In Europe, the European Securities and Markets Authority has also recently published guidance aimed at combating greenwashing. The regulator aims to establish common supervisory criteria for national regulators to supervise investment funds with “sustainability features”.

ESMA also says it plans to gather information on the market structure for ESG rating providers in the EU to further tackle greenwashing concerns. The European watchdog aims to develop a picture of the size, structure, resourcing, revenues and product offerings of the different ESG rating providers operating in the EU.

Nonetheless, regulators are facing further calls to beef up regulation against greenwashing.

Nigel Green, CEO of financial firm deVere Group, which offers a number of services including asset management and wealth management, said: “Although watchdogs are increasing scrutiny on alleged greenwashing practices, more still needs to be done. We need joined-up thinking on an international level to tackle an international issue.”

He added: “Investments linked with ESG credentials continue to receive unprecedented capital inflows as investors seek profits with a purpose. But to make sure this tsunami of private money is put to work in the correct way, it’s imperative that global regulators work together on an international framework of standards.”

Balance to be struck

Katharine Harle, financial services regulatory partner and head of UK regulatory and investigations at law firm Dentons, said: “In the US we’re starting to see more regulatory intervention, for investment companies in particular, where they are considered to have misrepresented ESG-related information or not done enough to prevent misstatements from occurring.”

Harle added: “From firms operating in the UK we anticipate this will be an area of activity for the FCA and that investment firms should be looking at this closely and considering what policies and controls they have in place and whether they are fit for purpose. Based on what I’m seeing though, this is an issue which the investment industry is really engaged with and wants to do the right thing but where further clarity on regulatory rules and expectations will help channel that.”

However, Felicity Ewing partner and co-head of Dentons’ UK core disputes practice stressed “the burden of compliance causing paralysis preventing firms from taking meaningful and adventurous steps” needs to be avoided.

“There will always be market participants who seek to stretch the limits of the rules, but there’s a real question of whether tighter and extensive regulation for all will bring about the results needed,” she said.

Harle concluded: “There is a balance to be struck between giving firms direction and giving them flexibility to do the right thing (when what that is will likely change).”

A service from the Financial Times