Deutsche Bank’s under investigation over greenwashing allegations as the ESG investing boom implodes

Green-washed up… More trouble at Germany’s biggest bank: for the second time in a month, authorities raided scandal-plagued Deutsche Bank’s Frankfurt HQ. This time it was to investigate allegations that DWS, an asset-management subsidiary of DB, has been “greenwashing” (aka: misleading investors about its environmental, social, and corporate governance — or ESG). In the fall-out, the CEO of DWS said he’d step down.

• ESG, meet SEC: The Securities and Exchange Commission began investigating DWS last year after an ex-employee said it fudged ESG info to woo investors (last week the SEC fined BNY Mellon $1.5M for misleading ESG claims).

Sustainable investment, unsustainable pace... ESG investing has exploded as investors demand socially responsible investment options. But ESG claims are unregulated and have been criticized as arbitrary. One example: the S&P’s ESG index includes oil giant Exxon, but not EV pioneer Tesla. Some have dismissed ESG investing as a “virtue bubble.” Now it may be bursting:

• Going (less) green: BlackRock, an ESG pioneer (and the world’s biggest money manager), backtracked and said it would support fewer “constraining” climate proposals.
• The rise of “anti-ESG”: Billionaires Peter Thiel and Bill Ackman recently backed Strive, an asset management firm that specifically avoids politics.

THE TAKEAWAY

This could be a Great Green Reset… the ESG strategy seems to be falling out of favor: after outperforming the S&P 500 in last year’s bull market, ESG funds are underperforming the S&P in this year’s downturn. But sustainable investment as a concept isn’t going anywhere: investors have already parked $41T in ESG funds. Instead, future ESG investors might seek more realistic forecasts — and play by stricter rules. Meanwhile, the SEC plans to keep cracking down on misleading ESG claims, though it still hasn’t standardized ESG criteria.