DWS Group, Germany’s top asset management firm, and its majority owner, Deutsche Bank, the country’s largest banking institution, have taken the lead in the competition for the title of “worst financial firm for the climate.” The firm earned its place due to a police raid on its offices on the heels of media reports that DWS had sold its so-called “green financial products as greener or more sustainable than they actually were,” according to the Frankfurt public prosecutors’ office. “ESG factors… were not taken into account at all in a large number of investments, contrary to the statements made in the sales prospectuses of DWS funds.”
In other words, allegations of greenwashing could become a criminal matter, i.e. fraud. It’s hard to imagine a worse scenario for a purpose-driven investment company claiming to be a major player in climate-related funding. “We have placed ESG at the heart of everything we do,” DWS chief executive Asoka Woehrman had said in the company’s 2020 annual report. The fallout so far includes Woehrmann’s abrupt resignation. More shoes may drop as the greenwashing charge works its way through the criminal justice system.
More shoes may drop as the greenwashing charge works its way through the criminal justice system.
Deutsche Bank and DWS have been under scrutiny since last year when former DWS head of sustainability Desiree Fixler said the company had made misleading statements in its annual report by claiming that more than half its $900 billion in assets were invested using ESG “integration.” Fixler was fired by DWS for filing her complaint internally, two months before the annual report was due. Her subsequent whistleblower account to the Wall Street Journal played a major role in bringing the issue to the attention of regulators.
The German firms vaulted to first place in the bad behavior department passing up HSBC, which had been topping the list due to last month’s surprising presentation at a conference by Stuart Kirk, global head of responsible investing at the bank. In a talk titled “Why investors need not worry about climate risk,” Kirk complained that “there was always some nut job telling me about the end of the world,” and accused central bankers of overstating the risks of climate change. Kirk was subsequently suspended, although it was learned that the theme and content had been internally approved by HSBC management two months earlier.
This startling performance followed charges by the U.K. watchdog, Advertising Standards Authority, which found that HSBC “misled” customers by “selectively promoting its green initiatives while omitting information about its financing of companies with substantial greenhouse gas emissions” according to the Financial Times.
Unless that shortfall is made up by the end of this month, the fund will be liquidated.
Gaining fast in the race to record exceptionally bad practice in climate-related finance is the Global Investors for Sustainable Development Alliance. The GISD includes heavyweights such as Bank of America, Citi Group, Pimco, Nuveen, Allianz, Santander, Standard and Chartered, and CalPERS among its 30 members and boasts $16 trillion in assets. This group launched the Impact Shares MSCI Global Climate Select ETF (ticker: NTZO) last November at COP26. Since then, it has collected only $3 million, leaving it $97 million short of the $100 million in assets that is required to operate the fund. Unless that shortfall is made up by the end of this month, the fund will be liquidated. “It’s a failure of collective action,” said Jim Healey, an early investor, speaking to Bloomberg.
These events far surpass the paltry fine of $1.5 million levied by the SEC against BNY Mellon’s investment advisor division for misstating ESG considerations in its mutual funds. The first-of-its- kind case serves as a warning to the ESG investment industry that serious oversight will be increasing.
Should we be discouraged by these stumbles? Yes, but not deterred.
Should we be discouraged by these stumbles? Yes, but not deterred. I’m reminded of a dictum by Jony Ive, the designer responsible for Apple products: “If there’s not some sort of friction in a move forward, your step is not as consequential as you’d like to believe.” I believe these examples, along with the now ubiquitous potshots at ESG coming from retrograde quarters of the investment industry, mark a maturation of climate-driven finance, the growing pains of a movement shifting from an ambitious theoretical concept into reality on the ground. The clean energy transition is the biggest consequential change in the global economy since the industrial revolution. Friction along the way is to be expected. Part of the work is to identify the sand in the gears of the machinery of change — i.e. bad bank behavior — and keep the momentum of trustworthy financial support rolling forward where it finds authentic action. We’re watching.