SEC Issues Record Penalty for ESG Greenwashing Violations

Kohn, Kohn & Colapinto LLP

In recent years, the U.S. Securities and Exchange Commission (SEC) has increasingly made Environmental, Social, and Governance (ESG) issues a central element of the agency’s enforcement priorities and on September 25, the Commission announced the largest penalty for ESG greenwashing ever imposed on an asset manager.

The SEC charged the Deutsche Bank subsidiary DWS Investment Management Americas Inc. with making misstatements about its ESG investment process. The Commission specifically alleges that DWS “failed to adequately implement certain provisions of its global ESG integration policy as it had led clients and investors to believe it would” and “failed to adopt and implement policies and procedures reasonably designed to ensure that its public statements about the ESG integrated products were accurate.”

“Whether advertising how they incorporate ESG factors into investment recommendations or making any other representation that is material to investors, investment advisers must ensure that their actions conform to their words,” said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force in the SEC’s press release. “Here, DWS advertised that ESG was in its ‘DNA,’ but, as the SEC’s order finds, its investment professionals failed to follow the ESG investment processes that it marketed.”

To settle the charges, DWS agreed to pay a $19 million penalty, the largest penalty for greenwashing ever imposed on an asset manager by the SEC.

According to reporting by the Financial Times, the SEC “launched its greenwashing investigation two years ago, prompted by a whistleblower complaint from DWS’s former head of ESG, Desiree Fixler.”

Through the SEC Whistleblower Program, qualified whistleblowers are entitled to monetary awards of 10-30% of the funds collected by the government in the enforcement action connected to their disclosure.

The SEC views its whistleblower award program as critical to its ESG enforcement efforts. For example, in 2021, when the agency announced the creation of a Climate and ESG Task Force it highlighted the fact that the Task Force “will evaluate and pursue tips, referrals, and whistleblower complaints on ESG-related issues.”

The ESG Task Force was created under the leadership of then-Acting Chair Allison Herren Lee, who spoke out about both the dangers of greenwashing and the importance of whistleblowers during her time at the SEC.

“Greenwashing can mislead investors as to the true risks, rewards, and pricing of investment assets,” said Lee, who now serves as Of Counsel at the whistleblower firm Kohn, Kohn & Colapinto. She separately noted that whistleblowers “help create transparency, and from transparency flows crucial accountability.”

Other ESG-related enforcement actions taken by the SEC include an enforcement action against BNY Mellon Investment for misstatements and omissions related to ESG considerations and one taken against Vale S.A., a Brazilian mining company, for misleading investors about safety, which led to a deadly dam collapse in 2019 that killed 270 people and caused severe environmental harm.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Kohn, Kohn & Colapinto LLP

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