Don’t Throw Out the Baby with the Greenwashing
(Bloomberg Opinion) -- News that regulators are investigating DWS Group GmbH for allegedly greenwashing some of its funds highlights an uncomfortable truth about environmental, social and governance labeling: It’s impossible to agree what qualifies as an acceptable investment. But the more effort that’s made, the better the outcomes will be, even if they fall short of perfection.
The Securities and Exchange Commission is probing whether DWS, a Frankfurt-based asset manager that’s 80% owned by Deutsche Bank AG, overstated its application of ESG criteria to some investment products, according to the Wall Street Journal. The German financial regulator BaFin is also scrutinizing the firm, Bloomberg News reported Thursday. The investigations come after the Journal said earlier this month that Desiree Fixler, who was fired as the firm’s chief sustainability officer in March, filed an unfair dismissal case alleging she was dismissed for objecting to ESG claims made in the company’s annual report.
Fixler is not the first former ESG fund chief to accuse an employer of greenwashing. Tariq Fancy, the former chief investment officer for sustainable investing at BlackRock Inc., the world’s biggest asset manager overseeing $9.5 trillion, in March said the industry offers nothing more than “marketing hype, PR spin and disingenuous promises” in marketing funds that claimed to be ESG friendly.
As clients increasingly demand that their money doesn’t contribute to activities that harm the environment or promote injustice, the pressure to compete in offering such investment strategies is relentless and growing. Bloomberg Intelligence estimates the total global market for ESG investment products will surpass $50 trillion in the next five years — a bandwagon no fund management firm can afford to miss.
DWS has capitalized on the trend. Some 4 billion euros ($4.7 billion) of the 19.7 billion euros of net inflows it attracted in the second quarter of this year came into dedicated ESG funds. In 2020, a third of DWS’s 30 billion euros of new money was for ESG products. The double-digit percentage fall in the company’s stock price in European morning trading on Thursday highlights shareholders’ concern that regulators will find fault with the firm’s ESG practices.
Investors are acutely aware of the dangers of being misled by marketing. A survey published in May by London-based wealth manager Quilter Plc, which oversees 127 billion pounds ($175 billion), showed that greenwashing was the biggest concern when it comes to investing responsibly among 1,500 investors with at least 60,000 pounds in investible assets. It beat even worries about higher fees and underperformance.
Fancy, the former BlackRock executive, has followed up his earlier diatribe with an article earlier this month that said so-called sustainable investing is “a dangerous placebo.” Only government action, he argues, can solve the climate emergency.
He’s probably correct that only nations have the firepower to remedy the various ills spoiling the planet. But that doesn’t mean the fund management industry can’t do its bit to influence the companies they invest in to be less harmful in their activities.
Fancy’s former employer, for example, voted against 255 board directors for failing to act on climate issues in the proxy period ended June 30, a fivefold increase in the shareholder’s activism compared with a year earlier. And BlackRock backed tiny fund management firm Engine No. 1 earlier this year in its successful effort to place three dissident directors on the board of Exxon Mobil Corp. to press for more climate action from the energy company.
As the primary allocators of capital, asset management firms have been pushed somewhat reluctantly to the forefront of the climate fight. But at least they’re belatedly rising to the challenge of actively seeking change in return for the money they invest. It would be a shame if overzealous regulators became a deterrent to those efforts. The perfect shouldn’t be allowed to become the enemy of the good.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."
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