But has the rapid rise of funds that prioritize environmental, social and governance — or “ESG” — issues actually helped achieve these goals? Or has it mostly amounted to a sleight of hand, as banks and investment managers repackage old products and append a “green” label so they look more desirable?
A crackdown by regulators is forcing the investment community to grapple with these questions, generating uncertainty about the future of Wall Street’s ESG fervor.
What’s happening: German prosecutors raided the asset manager DWS and the headquarters of Deutsche Bank, its majority owner, on Tuesday over allegations of “greenwashing.” DWS faces probes on both sides of the Atlantic after a whistleblower claimed it had overstated its green credentials and misled investors.
“The measures taken by the public prosecutor’s office are directed against unknown persons in connection with greenwashing allegations made against DWS,” Deutsche Bank said in a statement. “In response, DWS has stated that it has cooperated continuously and comprehensively with all relevant regulators and authorities in the past and will continue to do so in the future.”
Asoka Woehrmann, the CEO of DWS, announced his resignation on Wednesday.
The raid came just one week after the US Securities and Exchange Commission charged BNY Mellon’s investment management division over “misstatements and omissions” about its ESG processes.
The SEC claimed that between July 2018 and September 2021, BNY Mellon “represented or implied in various statements” that certain investments “had undergone an ESG quality review, even though that was not always the case.”
BNY Mellon agreed to pay a $1.5 million fine but did not admit or deny the findings, according to the agency.
It’s not just the suits that are coming down hard on ESG. Tesla CEO Elon Musk recently tweeted that ESG “is a scam” that’s “been weaponized by phony social justice warriors.”
His criticism came after Tesla (TSLA) was kicked out of the S&P 500’s prominent ESG index. S&P Dow Jones Indices said the electric carmaker’s ESG standing had been affected by claims of racial discrimination and poor working conditions at its Fremont manufacturing plant.Musk is not considered an ESG expert and has plenty of critics. But the inclusion of ExxonMobil (XOM) in the S&P index’s top holdings did raise eyebrows.
Looking ahead: Investment managers maintain that the ethos behind ESG investing isn’t going away, especially given the urgency of the climate crisis.
“We are going into a world of climate transition and we’ve got to get our clients’ capital on the right side of that, in the right ways,” a senior asset management executive at a …….