If you have been living under a rock over the past week, you may have missed the hot water DWS has found itself in with the German asset manager forced to deny claims made by former group sustainability officer Desiree Fixler that it painted a rosier-than-reality picture about its ESG credentials.
The claims made by Fixler led the Securities and Exchange Commission (SEC) and German regulator BaFin to launch probes into the greenwashing claims made by the former employee, who was sacked in March.
As a result, DWS’s shares fell 13.5% last Wednesday leading the firm to issue a statement firmly denying claims it misrepresented its ESG credentials to clients.
A DWS spokesperson said in a statement: “We firmly reject the allegations being made by a former employee. DWS will continue to remain a steadfast proponent of ESG investing as part of its fiduciary role on behalf of its clients.”
In an interview with the Wall Street Journal earlier this month, Fixler said she first raised concerns in November 2020 to the DWS management board claiming the ESG risk management system used by the firm was highly flawed.
Furthermore, she said the German asset manager made misleading statements in the firm’s 2020 annual report.
The firm responded in a statement: “As we disclosed in our annual report 2020 on page 90, DWS labelled strategies as “ESG Integrated” if they were actively managed and included coverage of ESG data on more than 90% of the portfolio. “ESG Integrated AUM” were not counted towards the firm’s “ESG AUM”.
But the question that remains is whether the saga will have a long-term impact on flows? The firm’s ESG credentials came under fire last year when one sustainable active fund, the DWS ESG Investa, included Wirecard in its portfolio until mid-June 2020, just two weeks before the payments company entirely collapsed due to accounting fraud.
This latest news will undoubtedly lead to investor concerns about why they should select DWS’s ESG strategies over other asset managers.
As Mandeep Jagpal, assistant vice president, equity research, at RBC Capital Markets, said: “Even if the rumoured investigation was unable to verify that ESG claims had been overstated, the reputational damage to DWS could potentially hamper net flows in the future.”
Furthermore, Michael O’Riordan, founding partner at Blackwater Search & Advisory, said it could damage the overall asset management industry in the long term.
“Are asset management firms deliberately misleading clients to take advantage of a massive trend within the market? You would hope the answer is no but asset managers are opportunistic beasts and tend to swim to where they smell blood,” O’Riordan continued.
“News that regulators are investigating DWS on claims it misled clients about its sustainable investing efforts will certainly sting but they are not the first to be accused of greenwashing funds and probably will not be the last.”
With the introduction of the EU’s Sustainable Finance Disclosure Regulation (SFDR) looking to put further pressure on asset managers to distinguish between strategies, the DWS saga could be a watershed moment for an industry still finding its feet when it comes to delivering ESG strategies to investors.