DWS probes spark fears of greenwashing claims across investment industry

Asset managers have made exaggerated claims for sustainability-focused investment across the industry after regulators on both sides of the Atlantic have focused on investing in the environment, society and governance at DWS in Germany. I am afraid that it could lead to a mis-sale scandal.

Research German and U.S. regulators blame claims by former DWS Global Sustainability Officer Greenwashing — Unfair claims about environmental practices — the central stage of the European investment industry.

Rival fundhouses are now afraid that sustainability claims could also be scrutinized. Sustainability is difficult to measure and varies widely from fund to fund.

Sébastien Thevoux-Chabuel, Portfolio Manager at Comgest, said: “”[What] What happened to DWS can happen to almost any investor. ”

Desiree Fixler, who was dismissed earlier this year for his role as Global Head of Sustainability at DWS, claimed that German asset managers made misleading statements in their 2020 annual report, with $ 900 billion in assets. More than half are ESG standards.

Last week, the DWS defended how it represented that number, with so-called “ESG integration” and ESG assets where sustainability issues are considered as part of the broader investment process of mainstream funds. He said the distinction is always clear. Specialist products with a mission to focus on sustainable investment.

Both the German Financial Supervisory Authority BaFin and US officials have begun investigating the issue.

Asset managers have shown sustainability credit in recent years against the backdrop of huge demand for ESG investments. According to data provider Morning Star, investors seek climate-friendly investment and generate returns as well as society.

However, Catherine Howarth, CEO of ShareAction, a responsible investment charity, said the credibility of asset managers for ESG investments “needs to be tested up to n degrees.”

“I don’t think DWS is the worst,” she said. “If DWS has this problem, many other asset managers also have this problem. I don’t think they were outliers or perfect paria out there — many others. [asset managers] I was doing something similar. “

Sustainability claims vary widely between asset managers and their clients. For example, some asset managers avoid fossil fuel-related stocks altogether, while others prefer to invest in oil-based stocks and use them as a way to put pressure on the company’s board of directors. This is an approach that can surprise some customers. Some fund managers buy bonds that penalize borrowers if they fail to meet their green goals. Others see it as a reward for failure.

Data providers that value companies with sustainability metrics also produce a variety of results. “Data quality is really bad,” said one industry executive familiar with DWS’s work in this area. “It’s like trying to invest in data from the 1980s.”

Last year, some investors blamed the poor quality of ESG data. Include Boohoo In many sustainable funds, despite accusations of inadequate labor practices in garment manufacturing factories.

A survey of 425 investors released last year by BlackRock represents a total of $ 25 trillion in assets under management. Poor quality Or the availability of ESG data and analytics represents the biggest obstacle to sustainable investment.

In addition, most major asset managers claim to integrate ESG into all investments. However, this is also not well defined. In one asset management company, the consolidation requires portfolio managers to consider the company’s ESG score before purchasing shares, and another asset management company may be excluded from the purchase of certain shares.

“Integrations are dependent on asset managers,” said an ESG specialist with a global asset manager.

“My biggest horror is waking up in the morning to find out that we are being accused of greenwashing. That’s the next mis-sale scandal,” he said, soaring the popularity of sustainable investment. Added that it meant “this will always happen”.

In July, the Financial Conduct Authority, a UK regulatory agency, announced I have written He stressed concerns to all asset managers about applications for launching new ESG or sustainability-focused funds, saying that they “often contain unscrutinized claims.” I warn you.

Other regulators are also paying more attention to ESG investment. New European rules that came into effect in March, Designed Stop greenwashing. The EU Sustainable Finance Disclosure Regulation imposes new ESG reporting requirements on asset managers and other financial market participants.

BaFin, the German Financial Supervisory Authority, has also begun talks aimed at tightening the requirements that asset managers must meet when establishing sustainable funds for retail investors.

All this suggests that regulatory investigations into DWS are likely to be more than one-time.

“There’s more positive talk about ESG, and it seems that the actual distribution by many fund managers is a bit less,” said one specialist working in the investment industry.

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