Deutsche Bank’s asset management arm, DWS Group, is under investigation after the former Head of Sustainability, Desiree Fixler, claimed they overstated how much sustainable investing criteria was used to manage assets.
DWS Group has over $1 trillion in assets under management.
Once news broke, the DWS Group’s stock price fell 13% in 24 hours.
The investigation, launched by the U.S. Securities and Exchange Commission (SEC) and federal prosecutors in Brooklyn, New York, is still in its early stages.
With environmental, social, and governance (ESG) initiatives rising, the SEC has established a 22-person task force to investigate ESG investment disclosures – and other global regulators have joined in.
The goal is to prevent “greenwashing” – disclosure-related fraud involving ESG investments.
If you’re wondering why companies would want to “greenwash” their investments so that they appear more favorable, consider this:
- ESG investments totaled $51B in the U.S. as of 2020.
- Morningstar reports that assets in ESG funds have surpassed $2 trillion globally during the second quarter of 2021 alone, with investments on track to exceed $53 trillion by 2025 (according to Bloomberg).
- According to Bank of America, ESG investing could rise by $15 trillion to $20 trillion over the next decade due to changing demographics. In other words, Millennials and Gen Z care about the environment and want to invest in its future.
Because of SEC oversight, investors can now feel confident as they invest in various ESG funds since they will no longer be green in title only.
For investors that still feel suspicious about ESG funds, the carbon offset industry can serve as an excellent alternative. It is projected to reach $100B in value by 2030, up from just $300 million in 2018.
Unfortunately for Deutsche Bank, the struggle to restore its brand may continue.
After several investigations concerning their long-term client, former President Donald Trump, and a $125 million penalty regarding foreign bribery schemes and manipulated precious metals markets, this new investigation may be more challenging to recover from.
As of now, no statement from DWS Group or Deutsche Bank has been released.
The ESG industry and investors alike are watching closely to see what happens.
