DWS Group Update
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The share price of German asset management company DWS fell more than 13% on Thursday after reports that the US and German authorities are investigating the 859 billion euro group on the grounds that the group misled customers in terms of sustainable investment.
According to a person familiar with the matter, the German regulator BaFin has launched an investigation into DWS after the former sustainability director of the asset management company claimed that it had misrepresented how it used environmental, social and governance indicators to analyze companies in the entire investment platform. matter.
BaFin said it will not comment on investigations related to individual companies, but it does regularly investigate allegations of ESG violations by funds within its jurisdiction. The BaFin investigation was first reported by Bloomberg.
According to people familiar with the matter, US officials are also investigating the same allegations. The Wall Street Journal first reported the US investigation. The US Securities and Exchange Commission and the Department of Justice have been asked to comment.
Desiree Fixler was removed from the post of DWS’s global head of sustainability earlier this year. She claimed in an earlier report in the Wall Street Journal that there were misleading statements in the DWS 2020 annual report released in March. The report claimed that more than half of its $900 billion in assets were invested in accordance with ESG standards.
A person familiar with the matter told the Financial Times that Fixler is an American citizen and her dismissal is being investigated in an employment court in Germany. She notified the DWS Management Committee of her concerns in early November 2020.
Fixler claims that an internal assessment she oversaw found that the ESG risk management system used by DWS was seriously flawed because it relied on outdated technology and used ESG assessments provided by a series of external rating providers.
However, the person stated that DWS portfolio managers do not need to consider ESG assessments when making investment decisions. This caused Wirecard, which went bankrupt earlier this year, to be included in a dedicated ESG fund operated by DWS.
DWS declined to comment on “issues related to litigation or regulatory matters,” but said it “sticks to its annual report disclosure” and firmly rejects these allegations. “DWS will continue to firmly support ESG investments as part of its fiduciary role on behalf of customers,” it said.
The marketing materials released by DWS claim that it has a long tradition in sustainable and responsible investment that can be traced back more than 20 years. Asoka Wöhrmann, who was promoted to CEO in 2018, once said that ESG is the cornerstone of DWS’ entire corporate strategy.
If the regulator finds that DWS has exaggerated its ESG qualifications, “possible results may include requiring re-labeling of funds,…… Payment of compensation or fines to customers who have mis-sold ESG products,” Royal Bank of Canada Capital Markets Analyst Mandeep Jagpal wrote in a report.
“Even if the rumored investigation fails to confirm that ESG claims are exaggerated, the reputational damage to DWS may also hinder future net traffic,” he added.
In recent years, in the context of the soaring demand for ESG investment, asset management companies are eager to announce their sustainability qualifications. According to data from the data provider Morningstar, the total assets of the Sustainable Brand Fund reached US$2.24 trillion in June, up from less than US$1 trillion at the end of March 2020.
But the surge in demand coincides with concerns about widespread “greenwashing”.European regulators try to crack down on asset management companies that misrepresent their ESG certificates New rules New investment categories and stricter disclosure requirements have been introduced.
The investigation was a blow to Deutsche Bank, the major shareholder of DWS. Christian Sewing, CEO of Deutsche Bank, has made DWS a core pillar of its strategy to revitalize Germany’s largest bank.Asset management is a stable source of fee income that does not rely on ultra-low interest rates, and is an important part of banks Ambitious ESG and net zero goals.
Reported by Joe Miller, Chris Flood, Attracta Mooney and Stephen Morris