Highest ESG fine in the fund management sector


German asset manager DWS has agreed to pay US$19mn to settle charges brought by the US Securities and Exchange Commission (SEC) over greenwashing allegations, the highest penalty related to environmental, social and governance criteria against an investment adviser imposed to date by SEC.

The company, majority-owned by Deutsche Bank, was charged by the US SEC for alleged misstatements linked to its ESG investments. It was also accused of anti-money laundering violations in a separate enforcement action, bringing the total penalty to $25mn.

The SEC accused DWS of making “materially misleading statements” about its controls over ESG factors linked to investment and research recommendations for ESG products, including some actively managed mutual funds.

The watch­dog launched its greenwashing probe two years ago, prompted by a whistleblower complaint from DWS’s former head of ESG, Desiree Fixler. According to Fixler, DWS made misleading statements in its 2020 annual report over the size of its ESG assets.

DWS has also been the subject of investigations over the past two years by German financial watch­dog BaFin and Frankfurt criminal prosecutors.

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,” said Sanjay Wadhwa, deputy director of SEC enforcement.

The fines come as the SEC has taken a tougher stance on Wall Street’s ESG policies under chair Gary Gensler. In an effort to boost investor protection, he has proposed rules to broaden disclosure on ESG risk while cracking down on misleading ESG statements.

In her whistleblower complaint, Fixler took issue with DWS’s “ESG integration policy” under which €459bn in assets were labelled as green. The asset manager ditched its approach in 2022, resulting in a 75 percent fall in assets reported as green.

Fixler told the Financial Times yesterday she “really commends” the authority and regulators over the action. “Greenwashing is harmful — to investors, communities and overall financial stability,” she said.

DWS agreed to the penalties without admitting or denying the SEC’s findings. The company said it was “pleased” to have resolved the matter.

Quotes sourced from a relevant article published by Financial Times, Sept. 2023

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