Author: Dr. Angelika Hellweger
2 October 2023
2 min read
Angelika Hellweger of financial crime specialists Rahman Ravelli details how ESG claims made by the bank’s investment arm led to it being fined millions.
In a recent case where its ESG (environmental, social and governance) claims were challenged, Deutsche Bank’s investment arm agreed to pay $25 million.
The fine is the highest ever imposed by the US Securities and Exchange Commission (SEC) relating to allegations of greenwashing - and is an indicator that the regulators continue to crack down on the practice.
With fines only expected to increase in the future in order to act as a deterrent, the Deutsche Bank settlement can be seen as a warning that companies must adhere to industry standards and regulations in order to preserve the market’s integrity.
Deutsche Bank’s investment body DWS is to pay the money to settle allegations that it overstated how it used ESG factors in its funds and failed to comply with anti-money-laundering rules for its mutual funds. DWS did not admit or deny the charges. But it agreed to two separate cease-and-desist orders related to the ESG misstatements and anti-money-laundering violations.
This action brings to an end a series of events that begin in 2021 when it was alleged that DWS had struggled to both define and implement an ESG strategy, leading to investors being given an unrealistic account of its activities. Ms Desiree Fixler had become DWS’ first head of sustainability in June 2020 but was dismissed less than a year later after raising concerns it had overstated its sustainability credentials in its annual report. Her actions led to investigations by German and US regulators and an internal investigation at the firm.
As a global investment firm with more than 800 billion euros of assets under its management, DWS has stated that it places ESG at the heart of what it does. But the SEC alleged that DWS made materially misleading statements about its controls in incorporating ESG factors into its research and investment recommendations for ESG-integrated products, including actively-managed ESG mutual funds and separately-managed accounts. DWS has agreed to pay $19 million to settle this, with $6 million paid to settle the money laundering allegation.
A DWS spokesperson said the firm has already taken steps to address the weaknesses in its processes and procedures identified by the SEC.
This action is one of several taken over the last couple of years in which a company’s ESG representations have failed to live up to stated standards, leading to the SEC taking enforcement action.
Last year, Goldman Sachs’ asset management arm paid $4 million to settle a regulatory investigation that found it did not follow a consistent investing framework in how it managed ESG mutual funds and other products. Like Brazilian mining company Vale and US investment banking services company BNY Mellon before it, Deutsche Bank has claimed too much when trying to establish its ESG credentials.
Angelika is a specialist in international, high-level economic crime investigations and large-scale commercial disputes. She has widely-recognised expertise in representing corporates and conglomerates in Europe, the Middle East, Africa and United States.