DWS this morning commented on the media coverage of the case, saying that it strongly rejected the allegations being made by a former employee. The saga sheds light on how ESG investing, which has grown rapidly in recent years, faces challenge around reporting, consistency and transparency.
(Updates story with DWS Group statement in third paragraph.)
Shares in Deutsche Bank were down yesterday afternoon amid a report that US regulators are probing its asset management business, DWS Group. The firm’s former head of sustainability said it exaggerated how it used sustainability measures to manage assets.
DWS Group oversees about €859 billion ($1.009 trillion) in assets under management, making it one of the largest fund managers in the world.
The Securities and Exchange Commission and federal prosecutors are in early stages of examining the matter at DWS Group. The newspaper, citing documents and the firm’s former sustainability chief, said that DWS struggled with its strategy on environmental, social and governance (ESG) investing and at times presented a more favourable story to investors. (The WSJ and other media reports did not identify the former sustainability chief by name.)
"DWS stands by its annual report disclosures. We firmly reject the allegations being made by a former employee. DWS will continue to remain a steadfast proponent of ESG investing as part of its fiduciary role on behalf of its clients. DWS has a long tradition of sustainable and responsible investing going back well over 20 years. More recently, we defined ESG as a cornerstone of our corporate strategy to develop into a leading ESG asset manager, as we expected the consideration of ESG criteria to become a license to operate for the entire asset management industry. DWS strives to always be transparent to the market, our clients and stakeholders in our message that the road to a sustainable future is long and hurdled; for the entire industry and also for DWS," the group said in a statement emailed to this publication.
Deutsche Bank’s share price was down 1.65 per cent, at €10.64 per share, at 15:30 Frankfurt time on Thursday.
The story comes at a time when ESG investing – often focused on issues such as global warming – has been one of the hottest trends in the financial and asset management space. Calls for firms to use market muscle to help achieve so-called “net zero” carbon emissions by the middle of the century, and hit other goals, have helped galvanise the ESG trend. As this publication can attest, fund management firms, wealth management businesses and banks regularly stress their ESG credentials. On the DWS website, for example, it referred on 19 August to its placing of its first green bond in “Formosa format,” involving a dual-listing in Taiwan and Luxembourg.
Regardless of what the probes might find, the affair also highlights the important need for clear, objective and widely-adopted measures of what ESG investment should look like. The trend is still in relatively early stages. For some time, this news service and others have heard concerns about so-called “greenwashing” of investments as well as a more general lack of clear information. (See an article here.)
In its annual report for 2020, issued by Asoka Woehrmann, CEO, head of asset management, DWS Group, said that annual net inflows stood at more than €30 billion in 2020. It said that ESG-dedicated funds continued to attract “strong investor interest, accounting for 30 per cent of our total annual net inflows in 2020.”
"As a firm, we have placed ESG at the heart of everything that we do. And having previously identified ESG as one of the key mega-trends shaping the next decade – an assessment further underscored by the pandemic – we worked intensively to implement a comprehensive ESG strategy as we see it becoming a dominant theme for our investors, clients and regulators alike.
“We established a Group Sustainability Office to oversee a coherent and holistic ESG strategy firm-wide. We secured the support of high-calibre external experts for our new ESG Advisory Board. And we enhanced both our ESG integration as well as our stewardship efforts with the introduction of Smart Integration into the investment process. Additionally, we publicly committed to becoming climate-neutral in our actions as a corporate and a fiduciary, becoming a founding signatory of the Net Zero Emissions initiative of the Institutional Investors Group on Climate Change,” the letter said.
On 3 June, DWS Grup carried a report Why ESG reporting requires scientific verification. In summary, it said: “A credible set of sustainability reporting standards need to be science-based, incorporate double materiality, and go beyond simply climate-related financial risks to broader sustainability issues.” In March this year, the firm published another report, Making sense of a chaotic ESG reporting landscape.
In DWS's home turf, Germany, The Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin) published draft guidelines on 8 August on sustainability-oriented investment funds. Firms will, under the BaFin proposals, have three options to choose from: minimum investment ratio, sustainable investment strategy or sustainable index. The fund industry has until 6 September 2021 to comment on these ideas.