Stricter regulatory interventions may be on the way for ESG investments, as authorities investigate Goldman Sachs Group and Deutsche Bank for greenwashing.
Goldman Sachs Group Inc is facing investigation by the US Securities Exchange Commission (SEC) into the validity of its funds using Environmental, Social, and Governance (ESG) criteria.
The agency is investigating whether some environmental, social, and governance (ESG) metrics promised in their marketing materials are misleading to investors, focusing on their mutual-funds business in its asset-management arm.
At this time, both Goldman Sachs and the SEC have declined to comment.
Sustainable investing (also known as ESG investing) is a powerful tool that enables business goals to be aligned with sustainable causes. However, a lack of clear regulation in how businesses and funds acquire a “sustainable” rating means that they can sometimes appear more eco-friendly than they really are, known as ‘greenwashing.’
In order to address these shortcomings, the European Commission implemented the Sustainable Finance Disclosure Regulation (SFDR) in March 2021. The hope was to establish a global benchmark for ESG investing by improving transparency in the sustainable investment market. But, the European Securities and Markets Authority recently acknowledged that the scheme was ‘incomplete and imperfect’ because of the speed with which it was created.
Just last month, authorities searched the offices of Deutsche Bank AG and its asset management unit DWS to investigate similar allegations of greenwashing. The case is the first of its kind in Europe.
DWS has been under investigation since last year after concerns were raised by the firm’s former sustainability chief Desiree Fixler, who alleged that DWS misrepresented the extent to which its assets were invested using ESG integration in its annual report.
The decision by German authorities to shift gears coincides with a sense of unease among asset managers that the rules by which they need to abide are uncomfortably vague.
“I believe these are the first ripples of a wave of regulatory interventions that we are likely to see in the coming months,” Sonali Siriwardena, partner and global head of ESG at law firm Simmons & Simmons told Bloomberg. “The number of ESG-focused funds has soared, so it’s no surprise that the regulators want to set expectations to maintain market credibility.
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