German prosecutors raided the offices of asset manager DWS and Deutsche Bank, which owns most of it, on Tuesday. The raids were done because investors may have been misled about “green” investments, the prosecutors said.
DWS and Deutsche Bank said that the asset manager had worked with authorities and regulators in the past and would continue to do so in the future. DWS has denied many times that it lied to investors.
The prosecutors said they were looking into reports in the news and claims from a whistleblower that DWS sold investments as “greener” or “more sustainable” than they really were. This is called “greenwashing.”
The German prosecutors said that there was “sufficient factual evidence” that environmental, social, and governance (ESG) factors were taken into account in a small number of investments but not at all in a large number of investments, which was different from what was said in DWS fund sales prospectuses.
Last year, the Securities and Exchange Commission and the German financial watchdog BaFin started separate investigations into claims made by DWS’s former head of sustainability that the company was lying about how it used sustainable investing criteria to manage investments.
It was the first time the German prosecutors had said in public that they were part of the investigation.
Regulators and policymakers have promised to crack down on companies that make false claims about how sustainable their products are in order to take advantage of the growing demand for ESG investing.
So far, not much has been done to enforce the law, but watchdogs are starting to tighten the screws. Last week, the SEC said that BNY Mellon Investment Adviser had paid $1.5 million to settle charges that it misrepresented ESG investment policies for some mutual funds it managed.
The SEC has proposed two rule changes that would make it illegal for ESG funds to make claims that aren’t true. At the same time, the EU’s markets watchdog is working on a legal definition of “greenwashing” that would be used to enforce the law.
Fund managers have quickly gathered billions of dollars in assets that are supposed to be good for the environment or society. This has led to more scrutiny of how companies define and use ESG standards.
All parts of the financial industry keep an eye on ESG claims. The Financial Times said last month that ads for green initiatives by HSBC were being looked at by the UK’s advertising watchdog.
Prosecutors say that about 50 people, including people from BaFin and the federal police, took part in the raid on DWS on Tuesday.
In Germany, it is hard to prove that a company did something wrong, but prosecutors often start investigations.
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