August 2021 was a decisive month for the environment, social and governance (ESG) invest.
We became familiar with the relentless engagements and press releases from asset managers praising their own sustainability achievements and goals.
For a long time, there didn’t seem to be much reputational risk for asset managers who exaggerate their own benchmarks on sustainable goals to remain relevant to an increasingly money-conscious institutional and retail investor audience. environment.
There has always been skepticism behind these claims, with warnings of greenwashing from some commentators, but hardly any asset manager has really been piqued by their own claims of green status. August marked a change on this point.
In an article published in the the Wall Street newspaper August 1st DWS was accused by Desiree Fixler, her former director of sustainable development, of having exaggerated the ESG complaints.
She had disputed claims by the Frankfurt-based asset manager in its 2020 annual report that 459 billion euros ($ 543 billion) – more than half of its assets under management – had had ESG criteria taken into account in investment decisions. DWS also affirmed ESG was “at the heart of everything we do.”
For a long time, there didn’t seem to be much reputational risk for asset managers exaggerating their own benchmarks on sustainable goals.
The former chief sustainability officer made a damning presentation to the board ahead of the annual report, stating, among other things, that DWS had no clear ambition or strategy and that ESG teams were not an integral part of decision making.
DWS issued a rebuttal on Aug. 26, saying the absolute numbers are transparently listed in its annual report.
During the same month, Risk.net published an article on Aug. 18 highlighting the questionable labeling of a group of petroleum investment funds that had been classified as promoting environmental or social characteristics. This status is self-conferred under Article 8 of the European Union Financial Disclosure Regulation (SFDR), and commonly referred to as “light green” in the industry.
Of the 798 Article 8 funds reviewed by Risk.net, NN Investment Partners had the fund with the highest proportion of oil stocks, with just over 91% of its NN Energy fund invested in oil majors like ExxonMobil and Chevron. NN Investment Partners declined to comment on the reasons why the fund was considered Article 8.
Status of Article 8 in SFDR is self-certified by asset managers for their funds. Although lawmakers have insisted they don’t want the statute to be seen as a label, many market players are treating it as such. Distributors and clients are known to seek funds categorized under SFDR like article 8 or the “dark green” funds of article 9 which only make sustainable investments.
A few days after the Risk.net the investigation has been opened, Reuters published an article following his own analysis of 20 funds of asset managers highlighting one of the & Exchange Traded Funds Article 8 of General Investment Management – L&G UK OPC actions AND F – which included a number of “sin stocks”, such as the oil giants PA and Royal Dutch Shell and British American Tobacco.
L&G Recount Reuters the fund was considered Article 8 because it promoted the characteristics of sustainability by applying LGIMof the Future World Protection List, which was a binding part of the investment process.
The growing attention of financial journalists on these ESG Claims should also shine the regulatory spotlight on asset managers. The weThe Securities and Exchange Commission and the Department of Justice have launched investigations into the DWS allegations, as well as the German financial watchdog Bafin.
The open question is how the asset managers will react. ESG status remains a powerful sales tool that businesses will want to keep. But it needs to be supported by a credible decision-making process for portfolio managers, and not just shrewd marketing literature.