The US Securities and Exchange Commission has fined German asset manager DWS $19mn for greenwashing. This is the highest amount the regulator has ever imposed on an investment advisor.
The Securities and Exchange Commission charged the company on Monday, a majority-owned by Deutsche Bank, for alleged false statements related to its ESG investment. In a separate enforcement measure, it was also accused of money laundering violations. The total fine is now $25mn.
The SEC accused DWS making “materially false statements” regarding its control over ESG factors related to investment and research recommendation for ESG products including some actively-managed mutual funds.
Watchdog began its investigation into greenwashing two years ago after receiving a complaint from Desiree fixler, former DWS head of ESG. Fixler claims that DWS misrepresented the size of ESG assets in its 2020 Annual Report.
DWS was also the subject of investigation by the German financial watchdog BaFin, and Frankfurt criminal prosecutor in the last two years.
Sanjay Waddhwa is the deputy director of SEC enforcement’s enforcement division. He said that DWS had advertised that ESG investments were in its “DNA.” However, the SEC order found that its investment professionals did not follow the ESG processes it had marketed.
Under Gary Gensler, the SEC’s chair, it has adopted a more aggressive stance towards Wall Street ESG policies. Gensler, in an effort to improve investor protection has proposed new rules that will broaden the disclosure of companies’ ESG risks while cracking down false ESG statements.
Fixler’s whistleblower complaint criticized DWS’s “ESG Integration Policy” which labelled €459bn of assets as green. Asset manager DWS ditched controversial approach in 2022. This resulted in a 75% drop in assets reported as green.
Fixler stated on Monday that “she really commends” both the authority and regulators for their action: “Greenwashing can be harmful to investors, communities, and overall financial stability.”
SEC alleged on Monday that DWS did not implement its global ESG policies between August 2018 and the end of 2021 as it had told clients and investors. The watchdog also said that the asset manager failed to ensure its “public declarations about ESG integrated products” were accurate.
DWS trained its staff in ESG, but according to SEC, some senior portfolio managers did not know about it or were unsure whether it applied to their company.
In a separate enforcement measure, the regulator claimed that DWS had failed to ensure mutual funds it advised were equipped with a “reasonably-designed” anti-money laundering program tailored to their particular risks as required by law. The company settled these charges by agreeing to pay $6mn.
Asoka wohrmann, the former DWS chief executive, was fired last year after the headquarters of the asset manager in Frankfurt were searched by police in relation to the greenwashing accusations. Wohrmann received a payout of €13.7mn including a €3.2mn bonus and €8.15mn severance. DWS stated in its annual report the possibility of clawback on the severance pay.
A spokesperson for DWS chairman Karl von Rohr refused to comment on “employee-related issues” but stated that the DWS Supervisory Board will “obviously fulfill its duties.” Von Rohr is a member of the Deutsche Executive Board and will leave the company next month, but will remain in DWS’s boards.
DWS accepted the penalties, without admitting to or denying SEC findings. The company stated that it was “pleased to have settled the matter” and added that the SEC did not find any misstatements in its financial disclosures, or the prospectuses of its funds. The $19mn payment was in line with the provision that the asset management made in July along with its half-year results.
DWS stated that “the weaknesses identified in the SEC relate to processes and procedures which the firm has already taken measures to address”.
DWS shares dropped 13 percent on the day when the SEC investigation was revealed in late august 2021. This wiped out €1bn of stock market value. The shares fell by 1 percent on Monday. They are now down 20 per cent compared to their pre-scandal levels.