Deutsche Bank landed in hot water this week for Greenwashing and the ensuing fallout has implications for the entire sector going forward when it comes to ESG fund management. From a Greenwashing standpoint, our ESG model had Deutsche Bank listed as a “High Risk” company over the past year.
In the wake of the raid of Deutsche Bank’s Frankfurt offices for Greenwashing, we are delving into the Financials sector on our ESG Safeguard platform. A whistle-blower who used to be Head of Sustainability for DWS (owned by Deutsche Bank) alleged that the asset manager was overstating the ESG credentials of its funds more than a year ago.
On Tuesday German authorities raided the company’s Frankfurt offices prompting DWS CEO Asoka Wöhrmann to step down less than 24 hours after the story broke. We covered Deutsche bank nearly two years ago when the asset manager was at the center of a money laundering scandal. Just last month there were allegations that Deutsche Bank was funding the highly controversial EACOP pipeline in Africa. The company has denied those claims and stated that those aims go against its goals of reaching net zero emissions by 2050. The raid this week casts further doubt on the sincerity of the bank's mission and goals when it comes to ESG.
Greenwashing is a term that has been used a lot lately and especially in the case of Deutsche Bank this week. Traditionally it pertains to only Environmental metrics but at Amenity we use all ESG metrics to measure sentiment difference between company content, like press releases and Earnings Calls, to compare with outside news. This allows us to examine the lenses of Social and Governance as well.
From a Greenwashing standpoint our model has Deutsche Bank listed as a “High Risk” company over the past year. Company content is largely focused on generic mentions of ESG product lines without further context on goals or asset strategy aside from how those product lines were growing.
External news is focused primarily on negative storylines like Legal issues and Ethics. Comparing company content to external news reveals a sharp division in how the company views itself compared to how the public views the firm. The company portrays itself as an ESG champion while maintaining a screen over what exactly is in its ESG funds.
German authorities may have carried out this raid, but they were not alone in the investigation. The SEC has been working in concert with Germany’s BaFin for the better part of two years to assess the allegations brought forth by a former employee. Earlier last week before the raid the SEC put out new proposals for ESG funds. In the statement Chair Gensler says that ESG funds should have the same transparency that food has at the grocery store, a stark change to today's environment where asset managers closely guard the contents of their funds.
As the SEC and other regulators add more scrutiny to ESG claims, asset managers should be prepared to provide real answers on their ESG strategies and goals. New regulations like this will change the way business is conducted and make it much harder for banks to get away with labeling generic funds as ESG friendly. For many fund managers alarm bells should be going off.
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This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.
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