The U.S. Securities and Exchange Commission (SEC) announced on Monday that it has charged Deutsche Bank’s investment arm DWS, one of the largest asset managers in Europe, over misleading statements the firm made regarding its ESG investment process.
DWS has agreed to a $19 million fine to settle the charges, marking the largest-ever greenwashing penalty imposed on an asset manager by the SEC.
The SEC announcement follows a 2-year investigation by the Commission, which was initiated after DWS’ former sustainability chief Desiree Fixler reportedly alleged that the firm misrepresented in its annual report the extent to which assets were invested using ESG integration in the investment process. Fixler was fired from DWS in March 2021 immediately prior to the release of the firm’s annual report.
In June 2022, German authorities raided the Frankfurt offices of Deutsche Bank and DWS following media reports that DWS overstated the green or sustainability-related aspects of financial products, and following examination of evidence leading to suspicion of “prospectus fraud.” DWS CEO Asoka Woehrmann resigned the following day.
According to a statement released by the SEC, the Commission found that DWS “made materially misleading statements about its controls for incorporating ESG factors into research and investment recommendations for ESG integrated products,” and that the firm failed to integrate aspects of its global ESG integration policy as marketed to clients. The SEC added that DWS failed to implement policies that would have ensured that its public statements about its ESG integrated products were accurate.
The announcement comes as the SEC is considering a series of proposed disclosure rules for funds and advisers that claim to integrate ESG factors into their investment products and services, aimed at providing clearer and more consistent information for investors, and to address the risk of greenwashing through the exaggeration or misrepresentation of ESG claims. Last week, the Commission adopted new rules that require funds with names that suggest an investment focus on ESG or sustainability-related factors to invest at least 80% of the value of assets in accordance with those factors.
Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force, said:
“Whether advertising how they incorporate ESG factors into investment recommendations or making any other representation that is material to investors, investment advisers must ensure that their actions conform to their words. Here, DWS advertised that ESG was in its “DNA,” but, as the SEC’s order finds, its investment professionals failed to follow the ESG investment processes that it marketed.”
In a statement following the SEC announcement, DWS noted that the examination found “no misstatements in relation to our financial disclosures or in the prospectuses of our funds,” and that there was no intent by the firm to defraud, adding that the firm has already taken steps to address the weaknesses identified by the SEC.
“We have learned many lessons from the ever-evolving regulatory environment and are fully committed to continuing to improve. We are grateful to our clients for their continued trust in our products.”