U.S. Authorities Probing Deutsche Bank’s DWS Over Sustainability Claims – The Wall Street Journal

The probe is a setback for Deutsche Bank, which owns a majority of DWS, a separately listed company in Germany. The bank has reached several settlements with authorities and has been trying to convince investors that its legal woes are behind it.

In January, the bank agreed to pay $130 million to resolve separate government investigations into a commodities-fraud scheme and accusations that the bank violated bribery laws in an effort to win business. Under what is known as a deferred-prosecution agreement, the bank won’t face criminal charges if it abides by certain requirements, including compliance measures and cooperating with investigations, for three years.

The probes indicate regulators’ interest in money managers’ efforts to offer products related to climate change, social issues and corporate governance risks. The SEC earlier this year established an enforcement task force to look for misleading ESG claims by investment advisers and public companies.

The Wall Street Journal reported earlier this month that DWS told investors that ESG concerns are at the heart of everything it does and that its ESG standards are above the industry average. But it has struggled to define and implement an ESG strategy, according to its former sustainability chief and internal emails and presentations.

For instance, DWS said in its 2020 annual report released in March that more than half of its $900 billion in assets at the time were invested using a system where companies are graded based on ESG criteria. An internal assessment done a month earlier said only a fraction of the investment platform applied the process, called ESG integration. The assessment added there was no quantifiable or verifiable ESG-integration for key asset classes at DWS.

Desiree Fixler,

at the time DWS’s sustainability chief, told the Journal that she believed DWS misrepresented its ESG capabilities.

A DWS spokesman said the firm stood by its annual report and that an investigation by a third-party firm found no substance to Ms. Fixler’s allegations. He said standards for defining ESG assets are constantly evolving, and that DWS has been seen by the market as being more conservative than most of its competitors in the definition.

ESG has become a huge business for asset managers. Assets in ESG funds surpassed $2 trillion globally in the second quarter, almost tripling in three years, according to

Morningstar.

Regulators say they may require advisers to disclose more about the criteria and data they use to pick ESG investments.

Investors want to make money while feeling they are contributing to a more sustainable and fair world. Given the demand, firms are rushing to classify their investment offers as ESG-friendly, sometimes stretching the definition, or making overblown claims.

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com, Corinne Ramey at Corinne.Ramey@wsj.com and Dave Michaels at dave.michaels@wsj.com