June 3, 2022 - ESG and Climate News
Crackdown on Greenwash
A major crackdown on greenwashing – the practice of over-hyping sustainability credentials – came to a head this week when Germany’s largest asset manager (DWS - a subsidiary of Deutsche Bank) was raided by police following allegations it misled investors on ESG considerations in its investment practices. The day after the raid, CEO Asoka Woehrmann stepped down.
Financial regulators had been investigating DWS for defrauding investors by exaggerating the ESG credentials of its investments. German prosecutors alleged that DWS sold investments as "greener" or "more sustainable" than they were. The raid and resignation at DWS followed a hefty settlement between the US Securities and Exchange Commission (SEC) with BNY Mellon for selling ESG financial products without sufficient due diligence.
Last week, the SEC unveiled new rule changes aimed at preventing misleading claims made by ESG funds. The rules will modernize and enhance the “Names Rule,” by requiring any fund with ESG in its name to clearly define the term and ensure that 80% of the assets in the fund adhered to that definition.
Critics say these changes do not go far enough to solve the greenwashing problem. Andrew Behar, president of activist investment firm As You Sow, said “The new rule acknowledges the problem but does not fully address it. Investors still need clarity on exactly what ‘sustainable’ and other terms like ‘fossil-free,’ ‘low-carbon,’ and ‘ESG’ mean.” This week’s Full Disclosure Newsletter takes a deep dive into this topic.
Welcome to the Party
The regulators join a chorus of critics targeting companies for greenwashing. Environmental advocacy groups in the Netherlands filed legal action against Dutch airline KLM, claiming that the airline misled the public about the sustainability of airline travel. The suit targets KLM’s Fly Responsibly campaign for allegedly misleading customers about the company’s commitment to net-zero. At issue is KLM’s reliance on future advances in airline fuels and offsetting credits to reach net-zero by 2050 while increasing flights.
The world’s largest sporting competition – Football’s (soccer) World Cup – has also been called out for greenwashing. FIFA (the world football association) and the host country Qatar claimed the upcoming 2022 event will have a net-zero carbon footprint. But Carbon Market Watch raised red flags, stating the net zero claim ignores major sources of emissions and overestimates offsetting emission credits.
Even the European Commission has been called out for exaggerating climate commitments. The European Court of Auditors reported that the European Commission overstated expenditures on climate action by at least 72 billion euros between 2014 and 2020, adding that the EU’s climate reporting mechanisms were unreliable.
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