Title: DWS Group Settles Greenwashing Charges with $19 Million Payment to SEC
Subtitle: German asset manager pays highest penalty ever imposed by the US securities regulator on an investment adviser related to environmental, social, and governance (ESG) criteria
Publication Date: [Date]
DWS, a German asset manager majority-owned by Deutsche Bank, has reached a settlement with the US Securities and Exchange Commission (SEC) to pay $19 million following allegations of greenwashing. This penalty represents the highest-ever fine imposed by the SEC against an investment adviser regarding ESG criteria.
The SEC accused DWS of making “materially misleading statements” about its ESG investments and controls. The watchdog claimed that DWS had violated anti-money laundering regulations in a separate enforcement action, bringing the total penalty to $25 million.
According to the SEC, DWS falsely represented its controls over ESG factors related to investment and research recommendations for ESG products, including actively managed mutual funds. The investigation into greenwashing was initiated two years ago, following a whistleblower complaint from DWS’s former head of ESG, Desiree Fixler, who alleged that misleading statements were made about the size of DWS’s ESG assets in its 2020 annual report.
DWS has also faced investigations by German financial watchdog BaFin and Frankfurt criminal prosecutors over the past two years.
Sanjay Wadhwa, deputy director of the SEC’s enforcement division, criticized DWS for failing to follow the ESG investment processes it marketed. He remarked, “DWS advertised that ESG was in its ‘DNA,’ but… its investment professionals failed to follow the ESG investment processes that it marketed.”
The SEC’s crackdown on Wall Street’s ESG policies, led by chair Gary Gensler, has resulted in a proposed rule to enhance transparency regarding companies’ ESG risks and to prevent misleading ESG statements.
Speaking about her whistleblower complaint, Fixler praised the authorities and regulators for taking action against greenwashing, which she believes is harmful to investors, communities, and overall financial stability.
In its allegations, the SEC stated 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 company also did not ensure the accuracy of its public statements regarding ESG-integrated products, according to the watchdog.
Furthermore, the investigation revealed that while DWS had trained its staff on the ESG strategy, some senior portfolio managers were either unaware of the policy or unsure if it applied to the company.
In a separate enforcement action, the SEC alleged that DWS had not maintained an anti-money laundering program consistent with legal requirements for mutual funds it advised. DWS agreed to pay $6 million to settle these charges.
Asoka Wöhrmann, DWS’s former chief executive, was ousted last year following a raid by Frankfurt police at the asset manager’s headquarters in relation to the greenwashing allegations. However, Wöhrmann received a substantial payout of €13.7 million, including a bonus and severance pay.
DWS’s chair, Karl von Rohr, and Deutsche Bank have not commented on potential clawbacks following the SEC settlement. Von Rohr will step down from his position as a Deutsche executive board member next month but will continue to serve on DWS’s board.
DWS agreed to the penalties without admitting or denying the SEC’s findings. The company stated it was pleased to have resolved the matter and emphasized that the SEC found no misstatements concerning its financial disclosures or fund prospectuses. The $19 million payment aligns with a provision disclosed by the asset manager in July alongside its half-year financial results.
DWS also asserted that it had taken steps to address the weaknesses identified by the SEC in terms of processes and procedures.
Since the disclosure of the SEC investigation in August 2021, DWS’s stock fell by 13 percent, erasing approximately €1 billion in market value. On Monday, shares declined by 1 percent, bringing the total decrease to over 20 percent compared to pre-scandal levels.