German police raided the offices of Deutsche Bank and its investment subsidiary (DWS) yesterday (Tuesday), on suspicion that financial institutions had stated that they had“Ecological” sunsets, defined as contributing to the environment, even though they were not. Officially, financial entities are being investigated on suspicion of investor fraud. Dozens of police officers, accompanied by Frankfurt General Prosecutors and employees of the Financial Regulatory Authority (BaFin) unexpectedly visited the offices of the two companies yesterday.
It now turns out that the investigation against DWS (and indirectly against Deutsche Bank, which owns about 80% of the investment company) has been going on since January this year. The key witness in the investigation is a former employee of the company, who accused the incumbent CEO and the company of “greenwashing financial” – defining investments from various fields, including infrastructure and capital, as environmentally friendly, although unrelated to the field – and marketing these financial products to investors. In recent years, it has been attracting increasing amounts of funds and global companies that boast of helping to combat climate change.
This morning (Wednesday), DWS CEO Ashoka Waherman announced his immediate resignation, but refused to admit to a prohibited activity. Against Waherman and against the company is Desiree Pixler, who was in charge of the company’s area of sustainability and was fired.
ESG funds have become an opportunity for image return without too much activity
According to German media reports, the suspicion is that the company’s official statements in investor reports in 2020 that half of the $ 900 billion portfolio invested in ESG products (environment, company and corporate responsibility) were deliberately misleading. U.S. financial authorities have also launched an investigation against the company in the past, amid Pixler’s allegations. DWS announced last year that it had changed the criteria, and that now only 115 billion of its investments are considered under the EWS category.
As public demand for sustainable financial products grows, financial institutions and businesses are increasing their share of the field. In fact, there are currently an estimated $ 2.7 trillion managed by more than 2,900 funds defined as ESG funds. But in practice, many companies see the field as a business opportunity, which along with flexible regulatory standards, can yield an image return even without significant activity.
Last week, he was suspended from his position in charge of responsible investment at HSBC, after saying at a public event that the climate debate had an “apocalyptic” face, adding: “Who cares if Miami is six meters underwater in 100 years? Amsterdam has been six meters underwater for ages, “And it’s a really nice place. We’ll deal with it.” His comments were inconsistent with the statements of the financial industry in the field, and HSBC was forced to remove him from his post, which deals with exactly the core of the matter in which he expressed contempt.
Europe is intensifying the war on grievances
The police raid and investigation in Germany are part of a growing oversight in Europe of ESG companies’ reports, after years in which the hacked market allowed companies not to back up their statements or statements on field operations. Just two weeks ago, Tesla founder Elon Musk lamented that the S&P rating company had ousted its car company from its ESG rating, even though the index itself boasts environmental standards, and includes oil companies such as ExxonMobil. Indeed, many rating agencies allow rated companies to skip environmental issues and get high ratings that will allow them to be integrated into the index, and relate in a given way to interpretation to the areas on which the ESG principles are based.
Europe has adopted clear criteria for climate risks according to SFDR standards, which also include the European taxonomy that specifies which investments can be considered green. While in Europe there are comprehensive requirements for the disclosure of a wide range of environmental, social and governance metrics at the legal entity and product level since last March, in Israel this is an emerging market, relying on ‘good intentions’ and statements not reviewed by the regulator.
Dr. Or Karsin, an environmental policy expert from the Open University, explains how much the local market has broken out. The document was intended to outline the policy of supervision and prosecution for misleading consumers in respect of false environmental statements and was to be implemented by the Consumer Protection Authority. A study I conducted revealed that since 2014, when the guidelines were adopted until today, not a single indictment has been filed and no significant investigation has been opened with the aim of implementing the guidelines and preventing Greenwash. Greenish statements are heard by various suppliers in many fields, including in the construction industry, through the fields of the food industry and ending in the financial market. This is not a new phenomenon, a well-known phenomenon that the authorities have so far ignored, as if the public is not paying a price for it. Those who make false statements enjoy the image benefits without committing to acts that contribute to the environment, as consumers expect. From a legal point of view, it is possible that there is happiness in doing so out of court, and certainly there is consumer fraud here that must be dealt with by the authorities, and there is certainly room for civil legal action as well. “
Roni Neiman and Adv. Orly Aharoni of the Clean Money Forum, which unites environmental organizations working to divert investment from polluting sectors, say that “the connection between the three letters ESG is not sacred, and sometimes allows very polluting companies to reach seemingly flattering ratings because of weighting. Climate crisis risks require us to address In a separate and accurate manner in this field, as was done within the framework of the SFDR in Europe. Meanwhile, financial greenwashing is a very common and problematic phenomenon in Israel. For example, rating agencies present in a positive light the most polluting entities in Israel, such as BZN and Paz Neft, institutional investors write on their website about alleged environmental concerns, despite the opposite investments required and Bank Mafar in the glorious corporate responsibility reports investing in green projects, but “forgets” Include funding for polluting activities. “