Stockholm (NordSIP) – Deutsche Bank’s asset management subsidiary DWS has just been hit with a USD 19 million fine by the US Securities and Exchange Commission (SEC). The penalty resulted from a two-year investigation by the US regulator, following whistleblower accusations that the firm had greatly overstated its sustainability credentials and integration of environmental, social and governance (ESG) factors within its various investment teams. The fine represents roughly 1.7% of the asset management firm’s 2022 pre-tax profits. One should add a bit of reputational damage onto the fine, but is that really enough of a deterrent to persistent greenwashers? Reputational damage can fade quickly in today’s fast moving news cycle.
Should ESG fund buyers have to read the small print?
In mitigation, the SEC did not find “misstatements” in DWS’ reporting or fund documentation. The problems arose from the way the firm presented itself in marketing materials and media interviews. One problematic – and ultimately costly – phrase that it used referred to ESG being in DWS’ DNA. This was taken to mean that ESG factors were incorporated across all the investment teams’ processes, which was not the case. A classic case of “caveat emptor,” but are typical mutual fund investors in a position to pore through the fund prospectus and determine whether ESG is integrated or not? Thankfully the regulator played its role in this case.
What most concerns the Laundromat in this case is the level of fine. When fines can be booked as an insignificant operating cost or rounding error, it stands to reason that they might not eradicate the behaviour that brought them about. As a case in point the UK government is reevaluating the fines on polluting water companies after years of inadequate penalties failing to instigate any positive changes in the sector. Let us see regulators show their teeth and really get the greenwashers quaking in their boots.
Shell hit by “friendly fire”
In other news this week, the Laundromat spotted an oil and gas giant coming under fire from an unexpected source. Increasingly, large fossil fuel producers are being targeted not just by non-governmental organisations (NGOs) but also by activist shareholders, the latter being greatly reinforced by institutional investors like pension funds in the past year. However, the latest “friendly fire” comes from within, as two Shell employees published an open letter to the CEO Wael Sawan urging him not to cut back the firm’s investments in renewable energy.
As covered in the Laundromat earlier this month, many large energy companies’ transition credentials as highlighted in their marketing are highly dubious. A June 2023 study of oil companies’ capital expenditure revealed that Shell only allocated around 9% of the total towards genuine renewables. This is not the first time that Shell has been on the wrong end of whistleblower accusations, but in this case it has not coincided with a resignation. Will internal mutinies help to finally get large corporations to take net-zero commitments seriously? The Laundromat cannot wait to find out – stay tuned!