Law and order is coming to the Wild West that has been investment ESG. Last week, agents from the German financial supervisory authority raided DWS, Deutsche Bank’s asset management subsidiary, on suspicion of greenwashing. Other asset management companies should not rest easy, either; both regulators and enforcement bodies are cracking down on over-optimistic labels and empty promises.
In this instance, authorities suspect DWS of fraud, plain and simple. They accuse DWS of describing more products as aligned with environmental, social, and governance (ESG) principles than is in fact the case, according to a whistleblower. This falls between two of the kinds of greenwashing that we described in our report: “fibbing” and “meaningless or false labels” (pretty self-explanatory, but fibbing is making false environmental claims, while meaningless or false labels is when a company markets a product or brand with false or meaningless certifications or labels that mislead consumers or investors). DWS, like so many others in the investment space, is trying to appeal to environmentally minded investors, who — depending on the country — can even outnumber investors who prioritize financial return. In this instance, ESG labeling made its way into investment product prospectuses when those products were not managed according to any ESG principles, goes the charge.
How Can The Likes Of DWS, And Other Business Leaders, Avoid Greenwashing Charges?
Our report on sustainability communications describes an accounting process that marketers must follow, which has six key perspectives. The instrumental perspectives that would help forestall this particular instance are:
- Regulatory and investment picture. Marketers must track major past, present, and (likely) future regulations concerning their product, specifically as they relate to disclosure and brand communications. The European Union’s Sustainable Finance Disclosure Regulation has been in development for about five years and was enacted three years ago. That enforcement authorities would take up this new cudgel should surprise no one. Marketers also must partner with legal and risk management to, first, develop and implement clear internal guidelines about how ESG factors can and cannot be described in any client communications, and second, audit existing client communications for ESG-related claims against those guidelines.
- Positioning of industry. Marketers must review and understand the specific ESG challenges of their industry and how their business shows up in this regard. Investment firms face huge risk as well as rewards from ESG claims. Marketers in investment companies must take the initiative to drive innovation in how ESG claims can be documented and communicated. This will likely mean ditching the “pages and pages of fine print” approach to disclosure and instead providing clear-language summaries with easy access to near-real-time ESG performance indicators for companies’ products.
To discuss our research on greenwashing in more detail, clients can read the greenwashing research or schedule an inquiry. Media can contact our public relations team to facilitate interviews: firstname.lastname@example.org.