September 6, 2021

SEC vs. DWS—An Investigation That May Impact the Global Investment Industry

by Detlef Glow.

When the Wall Street Journal published an article about the SEC’s investigation into a possible overstated declaration on the efforts to integrate ESG criteria at German asset manager DWS Group in August 2021, many market observers had to catch their breath. This is because the case could have consequences for the overall fund management industry that are not immediately apparent.

The investigation is based on claims by the former head of sustainability at DWS, who alleged in an interview with the Wall Street Journal that the asset manager overstates how the firm uses sustainable investing criteria to manage its investments.

That said, there is so far no proof that these claims are right, and every suspect has to be assumed to be not guilty as long as there is no formal proof of guilt.

Nevertheless, this investigation could send shockwaves through the global investment industry since I would assume that DWS is using the same methods to determine its ESG-related assets as other asset managers. This would mean that the outcome from this trial would have consequences for all other asset managers who have ESG-related funds registered for sale in the US. In addition, this investigation could become a landmark for other market regulators who may start their own investigations with regards to misleading information and/or on the integration of ESG criteria in portfolio management practices. Such investigations would raise concerns at asset managers around the globe, who are often trying to make their ESG policies fit with definitions that are often vague, contradictory, or quite simply absent.

I totally agree that greenwashing needs to be penalized. This is especially true for asset managers who are claiming in their marketing material that they might use ESG criteria but don’t integrate the respective criteria and data as mandatory filters and additional information in their securities selection and portfolio management process.

Don’t get me wrong—a missing definition is no excuse for greenwashing. But let’s take a closer look at this topic. Since there is no definition of sustainability for investments and no standards for the usage and implementation of ESG-related data in the portfolio management processes available, asset managers have produced their own definitions and standards that they employ in their portfolio management processes. This may explain why some asset managers are using weaker ESG criteria than others.

That said, investors need to bear in mind that even a very detailed description on the integration of ESG standards is only a plan, and they must evaluate whether this plan and the defined criteria are seriously taken into consideration when it comes to the selection of securities.

With regard to the missing standards and definitions, it is not surprising that we witness a wide range of “sustainable” investment approaches. Obviously, some of these use more sophisticated practices for the integration of ESG data than others, and are therefore considered as sustainable by a large number of investors and market observers. Conversely, it can’t be assumed that all simpler approaches are “greenwashing.”

In addition to a missing formal definition, one needs to bear in mind that the definition of sustainability, and therefore also of sustainable investments, is a very subjective matter. From this point of view, it is possible that the senior management at DWS Group might have a different view on what a sustainable investment is than their former head of sustainability.

In this regard, this case shows how important it is that market regulators finally define standards for sustainable investments that would allow asset managers to act accordingly. Personally, I hope that this case will lead to a broader consensus on how ESG criteria should be integrated in portfolio management and how asset managers should communicate their respective efforts within their marketing material and reports. This would be another step to reduce greenwashing.


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The views expressed are the views of the author and not necessarily those of Refinitiv. This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

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