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German asset manager DWS has agreed to pay $19mn to settle charges brought by the US securities regulator over greenwashing allegations, the watchdog’s highest penalty related to environmental, social and governance criteria against an investment adviser.
The company, which is majority owned by Deutsche Bank, was charged by the Securities and Exchange Commission on Monday for alleged misstatements linked to its ESG investments. It was also accused of anti-money laundering violations in a separate enforcement action, bringing the total penalty to $25mn.
The SEC accused DWS of making “materially misleading statements” about its controls over ESG factors linked to investment and research recommendations for ESG products, including some actively managed mutual funds.
The watchdog launched its greenwashing investigation two years ago, prompted by a whistleblower complaint from DWS’s former head of ESG, Desiree Fixler. According to Fixler, DWS made misleading statements in its 2020 annual report over the size of its ESG assets.
DWS has also been the subject of investigations over the past two years by German financial watchdog BaFin and Frankfurt criminal prosecutors.
“DWS advertised that ESG was in its ‘DNA,’ but, as the SEC’s order finds, its investment professionals failed to follow the ESG investment processes that it marketed,” Sanjay Wadhwa, deputy director of the SEC’s enforcement division, said.
The penalties come as the SEC has taken a tougher stance on Wall Street’s ESG policies under chair Gary Gensler. In an effort to boost investor protection, Gensler has proposed new rules to broaden disclosure on companies’ ESG risk while cracking down on misleading ESG statements.
In her whistleblower complaint, Fixler took issue with DWS’s so-called “ESG integration policy” under which €459bn in assets were labelled as green. The asset manager ditched its controversial approach in 2022, resulting in a 75 per cent fall in the assets that were reported as green.
Fixler told the Financial Times on Monday that she “really commends” the authority and regulators over its action: “Greenwashing is harmful — to investors, communities and overall financial stability.”
The SEC on Monday alleged that between August 2018 and late 2021, DWS failed to implement its global ESG policy as it had led clients and investors to believe. The asset manager also failed to make sure that its “public statements about the ESG integrated products were accurate”, the watchdog said.
DWS had trained staff on its ESG strategy, but some senior portfolio managers were not aware of it at all or were unsure if it applied to the company, according to the SEC.
In a separate enforcement action, the regulator alleged DWS failed to ensure that mutual finds it advised had a “reasonably designed” anti-money laundering programme tailored to their specific risks, as required by law. The company agreed to pay $6mn to settle these charges.
Asoka Wöhrmann was ousted last year as DWS chief executive after the asset manager’s headquarters in Frankfurt were raided by police over the greenwashing allegations, but received a bumper payout of €13.7mn, including a bonus of €3.2mn and €8.15mn in severance pay. DWS highlighted in its annual report that the severance package was subject to the “possibility of clawback”.
A spokesperson for DWS chair Karl von Rohr declined to comment “on employee-related matters” but said the DWS supervisory board will “obviously perform its duties.” Von Rohr, a Deutsche executive board member, will leave the bank next month but will remain on DWS’s board.
DWS agreed to the penalties without admitting or denying the SEC’s findings. The company said it was “pleased” to have resolved the matter, adding that the SEC found no misstatements linked to its financial disclosures or its funds’ prospectuses. The $19mn payment is in line with a provision over the matter that the asset manager disclosed in July alongside its half-year numbers.
DWS said “the weaknesses identified by the SEC are in relation to processes and procedures that the firm has already taken steps to address”.
When the SEC investigation was disclosed in late August 2021, DWS shares fell 13 per cent on the day, wiping out about €1bn in stock market value. Shares fell 1 per cent on Monday, leaving them down more than 20 per cent from their pre-scandal level.