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German institutional shareholders plan lawsuit over VW emissions scandal

Auto giant could also be ejected from the Dow Jones Sustainability Index

As the diesel emissions scandal rips through Volkswagen (VW), it has already emerged that institutional investors in Germany are planning to sue the auto giant for damages relating to the implosion of its share price – and that the company may face being ejected from the Dow Jones Sustainability Index (DJSI).

The scandal at VW erupted when its Chief Executive Martin Winterkorn admitted that the company had cheated during emissions tests of its vehicles. The cheating was made possible by special software installed in the engines that artificially reduced nitrous oxide (NOx) emissions during the tests. According to news reports, VW could face up to $18bn (€16bn) in fines from US regulators.

Things got even worse for VW today (September 22), as the Wolfsburg-firm said in a statement to financial markets that it would set aside €6.5bn in reserves this quarter. The money is to cover the costs of recalling 11m motors equipped with the software, known as a “defeat device,” as well as fines and litigation stemming from the scandal. As a result both announcements, the VW share has been in free fall, losing 34% of its value since Friday to trade around €106.

The loss of billions of euros in VW’s market capitalisation has prompted the first lawsuits from its shareholders. According to Marc Schiefer, a lawyer with the firm TILP in Tübingen (near Stuttgart), TILP is preparing a case for several investors, among them German asset managers and pension funds.

“In order for the case to go forward, we have to attract at least ten investors (in VW), but we are confident that we will get them and many more,” Schiefer told Responsible Investor. The investors would seek compensation for the steep fall in VW’s share price between Friday close of trading and today, Schiefer added. The US-based law firm Kessler Topaz Meltzer & Check has also prepared a class action suit that seeks to indemnify owners of the relevant VW vehicles.Meanwhile, RobecoSAM, the Zurich-based sustainable asset manager that runs DJSI, jointly with Standard & Poor’s, says it is monitoring events at VW very closely. “We are currently talking with the company to get to the bottom of what happened,” a spokesman said, adding that, if necessary, an impromptu meeting of the committee that decides the DJSI’s constituents can be called.

VW has gone into full damage control mode, insisting that it is fully cooperating with US and European regulators and doing its utmost to regain the lost trust in its brand. VW has ordered an external investigation of the scandal and its board has called an emergency meeting for tomorrow (September 23). Whether CEO Winterkorn knew of the diesel emissions scam in the US is unclear as is his future with the company. VW’s board was to decide whether to renew Winterkorn’s contract on Friday (September 25). He has been CEO of the VW since 2007 and, in this capacity, directly responsible for research and development.

Said Lower Saxony Premier Stephan Weil, who sits on VW’s board owing to his state’s 20% stake in the company: “Cheating on emissions tests is completely unacceptable. I expect to get to the bottom of the scandal, and only after then can we deal with the consequences.”

Ingo Speich, Head of Proxy Operations at Frankfurt-based Union Investment, which owns 0.4% of VW, said he was bracing himself for a widening of the scandal. “The market is anticipating more than just the US issue. We have to admit from just looking at the facts that there is a huge loss of trust in management,” said Speich.