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UPDATED: BaFin and SEC investigate DWS over ESG allegations

Regulators in the US and Germany are exploring the claims

Both the German and US financial regulators have launched investigations into asset manager DWS over accusations that it made misleading statements about its use of sustainability criteria.

RI understands that Germany’s Federal Financial Supervisory Authority, more commonly known as BaFin, has been investigating allegations made against DWS for some time; and in the US, in what appears to be the first sustainability-related case taken up by the Securities and Exchange Commission (SEC) since it created its new ‘anti-greenwashing’ body, the Wall Street Journal has reported that the regulator and federal prosecutors are in the early stages of a similar investigation. 

The probes come after allegations made last month by DWS’ former Group Sustainability Officer, Desiree Fixler, that the firm had exaggerated its ESG claims during her tenure. Fixler claimed in the Wall Street Journal that revisions and objections she made to statements regarding the volume of the DWS’s assets under ‘ESG integration’ in its 2020 annual report were never included. That report stated that DWS had €459bn in “integrated ESG assets” – more than half its total AUM – but the Wall Street Journal reported that the asset manager’s internal assessment of ESG capabilities, which was circulated a month earlier, said that “only a small fraction of the investment platform applies ESG integration”.

DWS strenuously denied that had it issued misleading statements at the time; it did not respond to repeated requests for comment about the new investigations. Its share price plummeted on the news that the SEC will look into the claims, falling 13% at the time of writing. 

BaFin has been taking action to “protect investors from greenwashing” in recent months, consulting on proposed guidelines for sustainable funds to prevent misleading marketing.

Sources close to the regulator said it had been looking into the claims made about DWS, but a spokesperson for BaFin declined to comment on individual companies, saying: “We evaluate the annual audit reports for each fund and each capital management company under our supervision. In these reports, auditors determine, among other things, whether a capital management company has complied with its legal obligations and whether a fund was managed in accordance with its investment conditions in the past financial year or whether it was violated. This includes in particular the ESG requirements applicable to the fund, which are set out in the fund's investment conditions. If there are indications of a violation of ESG guidelines, we will investigate them. The same applies to information that we receive from investors, whistleblowers or the press.”

In March, the SEC launched a specialist Climate and ESG Taskforce to identify “ESG-related misconduct”. Sitting within the SEC’s Division of Enforcement, the body explores potential ESG violations, with an initial focus on finding ESG information gaps or misstatements by companies, investment advisers and funds.

The investigation into DWS’ claims appears to be the first case taken up by the taskforce, although the SEC had not confirmed this at the time of publication. 

Other regulators tightening up rules on ESG claims in order to crack down on greenwashing include the UK’s Financial Conduct Authority, which in July set out principles for ESG-labelled funds after seeing a number of poor quality ESG fund applications. In March, Denmark’s Financial Supervisory Authority created a unit to monitor investors’ sustainability disclosures under new EU rules and to combat greenwashing.

Update: Since publication, DWS has issued the following statement

"While we do not comment on questions relating to litigation or regulatory matters, DWS wants to address unfounded allegations being reported in the media on its ESG disclosures: 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.

We have always been clear in our reporting: At DWS, we differentiated between "ESG Integrated AuM" and "ESG AuM" (which DWS referred to as “ESG Dedicated”) when presenting the assets under management in our Annual Report 2020 and reported both classifications. As we disclosed in our Annual Report 2020 on page 90, DWS labeled strategies as “ESG Integrated” if they were actively managed and included coverage of ESG data (the overall SynRating) on more than 90% of the portfolio. “ESG Integrated AuM” were not counted towards the firm’s “ESG AuM” (“ESG Dedicated”). The absolute numbers are transparently listed on page 92 and 93 of our Annual Report 2020.

In our more recent half-year report published in July 2021, we reported EUR 70.1 billion of ESG AuM (“ESG Dedicated”) after applying our revised ESG product classification approach in accordance with the new SFDR guidelines*. In addition, we reported EUR 16.4 billion of illiquid green-labelled single assets in non-ESG classified products.

DWS will continue its path towards becoming a leading ESG asset manager."