SEC Vs. DWS - An Investigation That May Impact The Global Investment Industry

Don’t get me wrong—a missing definition is no excuse for greenwashing. But let’s take a closer look at this topic. Since there is no definition of sustainability for investments and no standards for the usage and implementation of ESG-related data in the portfolio management processes available, asset managers have produced their own definitions and standards that they employ in their portfolio management processes. This may explain why some asset managers are using weaker ESG criteria than others.

That said, investors need to bear in mind that even a very detailed description on the integration of ESG standards is only a plan, and they must evaluate whether this plan and the defined criteria are seriously taken into consideration when it comes to the selection of securities.

With regard to the missing standards and definitions, it is not surprising that we witness a wide range of “sustainable” investment approaches. Obviously, some of these use more sophisticated practices for the integration of ESG data than others, and are therefore considered as sustainable by a large number of investors and market observers. Conversely, it can’t be assumed that all simpler approaches are “greenwashing.”

In addition to a missing formal definition, one needs to bear in mind that the definition of sustainability, and therefore also of sustainable investments, is a very subjective matter. From this point of view, it is possible that the senior management at DWS Group might have a different view on what a sustainable investment is than their former head of sustainability.

In this regard, this case shows how important it is that market regulators finally define standards for sustainable investments that would allow asset managers to act accordingly. Personally, I hope that this case will lead to a broader consensus on how ESG criteria should be integrated in portfolio management and how asset managers should communicate their respective efforts within their marketing material and reports. This would be another step to reduce greenwashing.

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