Putting sustainability claims to the regulatory test

AS more assets flow into sustainable or environmental, social and governance (ESG) investments, regulators in the US and Europe are laying frameworks for closer scrutiny of sustainability claims by fund managers.

That surely is not a surprise. The European Union (EU) has long signalled its intent to weed out greenwashing, or the practice of making outsized or false claims of a fund's sustainability credentials. The US regulator is also taking a tougher stance. What may be startling is the speed at which a high-profile case has emerged, just months after the EU Sustainable Finance Disclosure Regulation (SFDR) went into effect.

Deutsche Bank's asset management arm, DWS Group, has found itself in regulatory crosshairs in the US and Germany over allegations that it overstated how widely it applies ESG-integration on its US$1 trillion of assets. The US Securities and Exchange Commission and federal prosecutors are looking into the case, and so is German regulator BaFin.