Historically high ESG-fine in Germany for 'greenwashing'

The Public Prosecutor’s Office in Frankfurt has imposed a EUR 25m fine on DWS, Deutsche bank's asset management arm after accusing the company of greenwashing.

The Frankfurt Public Prosecutor’s Office has issued the fine against DWS Group and DWS Investment as part of an investigation conducted jointly for several years with the Federal Criminal Police Office in Wiesbaden on suspicion of “greenwashing”, the prosecutor said in a statement. They commented DWS had "extensively" advertised financial products which claimed to have ESG characteristics from 2020 to 2023. The investigations found that "statements in external communications, such as claiming to be a 'leader' in the ESG area or stating 'ESG is an integral part of our DNA' did not correspond to reality,". While a "transformation process" was underway at the firm, it had not yet been completed, they said, adding: "Statements in external relations must not go beyond what can actually be implemented."

The fine is certainly one of the highest issued in Germany if not in Europe. The penalty can be seen as a wake-up call in the dawn of the laws implementing new EU regulation, including the Green Claims Directive and the Empowering Consumers Directive. Both contain rules that will influence advertising as well as the provision of information companies (from financial services firms to consumer products) will have to provide to their clients. The most important measure is transparency and correctness – both regulations aim to ensure customers are not misled.

In this case, ESG products have in recent years become a major asset class, and incorrect information about these products or the participants in the distribution chain may be seen as misleading. It is fair to say critics worry about a potential lack of standardised data and criteria to prove such investments or the firms behind them are truly sustainable. The case also highlighted growing concerns about how to police a surge in "environmental, social and governance" (ESG) investing as companies and institutions seek to bring portfolios in line with climate targets.

DWS commented “This [fine] is based on DWS’s past deficiencies with regard to certain ESG-related documentation and control processes, procedures, and marketing statements”.

The action shows that companies must review their product and marketing information which may come under scrutiny by consumer protection organisations, NGO's but also prosecutors or regulators.