German officials have reportedly raided the headquarters of asset management firm, DWS, and Deutsche Bank, its majority owner, over allegations of deceiving investors about green investments.
DWS and Deutsche Bank stated that the asset management has previously cooperated with authorities and regulators, and that it would proceed to do so in the future. DWS, on its part, denied that it had deceived investors.
Officials stated that they were investigating news stories and allegations made by a whistleblower who claimed that DWS misrepresented investments as ‘more sustainable’ or ‘greener’ than they were, a practice known as greenwashing.
According to German prosecutors, ESG or environmental, social, and governance factors were taken into consideration in a minority of investments, but have not been taken into consideration at all in a large number of investments, contradicting statements in DWS fund sales filings.
Last year, the U.S. Securities and Exchange Commission (SEC) as well as the BaFin, the German financial watchdog, opened independent investigations into accusations made by the former head of sustainability of DWS, who alleged that the firm was exaggerating how it used sustainable investing requirements to handle investments.
The German prosecutors' remark was the first time they had officially stated that they were working on the case.
DWS stated that it will cooperate with any and all authorized bodies to settle any or all queries they might have had.
As corporations try to cash in on the rising demand for ESG investing, legislators and regulators have promised to crack down on firms making inflated claims regarding their products' sustainable credentials.
Though government regulators are starting to tighten the belt, enforcement action has been negligible thus far. The Securities and Exchange Commission announced last week that BNY Mellon Investment Adviser had paid over $1.5 million to settle claims that it misrepresented ESG investment practices for some mutual funds it administered.
The SEC has suggested two rule revisions targeted at preventing spurious ESG fund claims, meanwhile the European Union's markets regulator is continuing to work on a legal definition of greenwashing to reinforce enforcement action.