German prosecutors raided asset manager DWS and the headquarters of its majority owner Deutsche Bank on Tuesday over allegations of misleading investors about “green” investments, the prosecutors said.
DWS and Deutsche Bank said the asset manager had cooperated with regulators and authorities in the past and would continue to do so. DWS has repeatedly denied allegations it misled investors.
The prosecutors said they were following up on news reports and a whistleblower’s allegations that DWS sold investments as “greener” or “more sustainable” than they were, a practice known as “greenwashing.”
The German prosecutors said “sufficient factual evidence has emerged” that environmental, social and governance (ESG) factors were taken into account in a minority of investments “but were not taken into account at all in a large number of investments,” contrary to statements in DWS fund sales prospectuses.
The Securities and Exchange Commission and German financial watchdog BaFin last year launched separate investigations into allegations made by DWS’ former head of sustainability that the company was overstating how it used sustainable investing criteria to manage investments.
The German prosecutors’ statement was the first time that they have said publicly they were involved in the investigation.
Regulators and policymakers have pledged to clamp down on companies making exaggerated claims about the sustainability credentials of their products as they try to cash in on booming demand for ESG investing.
Enforcement action has been minimal so far, although watchdogs are beginning to tighten the screws. Last week, the SEC said BNY Mellon Investment Adviser had paid $1.5 million to resolve charges it misstated ESG investment policies for some mutual funds it managed.
The SEC has proposed a pair of rule changes aimed at stamping out unfounded ESG fund claims, while the European Union’s markets watchdog is working on a legal definition of “greenwashing” to underpin enforcement action.
Fund managers have rapidly amassed billions of dollars of assets that are meant to have an environmental or social profile, prompting more scrutiny over how firms define and apply ESG standards.
Monitoring of ESG claims extends across the financial industry. The Financial Times reported last month that HSBC was facing scrutiny from the UK advertising watchdog over ads promoting green initiatives.
There were about 50 people involved in Tuesday’s raid on DWS, including officials from BaFin and federal police, prosecutors said.
The bar for successfully prosecuting corporate wrongdoing is high in Germany, although prosecutors regularly open inquiries.
