DWS this morning commented on the media coverage of the case, saying that it strongly rejected the allegations being made by a former employee. The saga sheds light on how ESG investing, which has grown rapidly in recent years, faces challenge around reporting, consistency and transparency.

DWS Group, the asset management business of Deutsche Bank, says it rejects claims that it has exaggerated how it used sustainability measures to manage assets. The claims have highlighted how environmental, social and governance investment approaches remains a work in progress.

Shares in Deutsche Bank fell yesterday after a report by the Wall Street Journal that US regulators are probing DWS Group; they remained slightly lower today.

DWS Group oversees about €859 billion ($1.009 trillion) in assets under management, making it one of the largest fund managers in the world. 

The Securities and Exchange Commission and federal prosecutors are in early stages of examining the matter at DWS Group. The newspaper, citing documents and the firm’s former sustainability chief, said that DWS struggled with its strategy on environmental, social and governance (ESG) investing and at times presented a more favorable story to investors. (The WSJ and other media reports did not identify the former sustainability chief by name.)

DWS Group said the claims against it were baseless.

"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," the group said in a statement emailed to this publication.

In a statement, the SEC told this news service: "SEC does not comment on the existence or nonexistence of a possible investigation."

The story comes at a time when ESG investing - often focused on issues such as global warming - has been one of the hottest trends in the financial and asset management space. Calls for firms to use market muscle to help achieve so-called “net zero” carbon emissions by the middle of the century, and hit other goals, have helped galvanize the ESG trend. As this publication can attest, fund management firms, wealth management businesses and banks regularly stress their ESG credentials. On the DWS website, for example, it referred on August 19 to its placing of its first green bond in “Formosa format,” involving a dual-listing in Taiwan and Luxembourg. 

Regardless of what the investigation might find, the affair also highlights the important need for clear, objective and widely-adopted measures of what ESG investment should look like. The trend is still in relatively early stages. For some time, this news service and others have heard concerns about so-called “greenwashing” of investments as well as a more general lack of clear information. 

DWS Group response
Elsewhere in its statement yesterday, the German firm, which operates in a number of jurisdictions, said: “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 per cent of the portfolio.

“`ESG Integrated AuM’ was not counted toward 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 €70.1 billion of ESG AuM (`ESG Dedicated’) after applying our revised ESG product classification approach in accordance with the new SFDR guidelines (Our ESG product classification as of June 30, 2021.) In addition, we reported €16.4 billion of illiquid green-labeled single assets in non-ESG classified products,” the statement added.”