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DWS Group CEO Quits Amid Greenwashing Allegations

Story Highlights

ESG has gained tremendous importance recently, with all companies trying to meet climate targets and ESG standards of governance. Is this pressure leading companies to manipulate their strategies?

The CEO of DWS Group (GB: 0SAY), a German asset management company and a prior unit of German banking giant Deutsche Bank AG (NYSE: DB), has decided to step down from his role effective June 10, following greenwashing allegations and investigations into the firm.

Greenwashing is effectively claiming that a company is environmentally sustainable, when, in reality, it does not comply with the sustainability guidelines to their full effect.

Following the news, shares of DWS fell more than 6% to close at €31.29 on June 1. Year to date, its stock has lost nearly 15%. Meanwhile, DB stock fell 1.9% to close at $10.97.

Greenwashing Allegations

According to the Wall Street Journal, on Tuesday, both DWS and Deutsche Bank’s German offices were raided by around 50 agents from Frankfurt’s public prosecutor’s office, along with German market regulator BaFin and the federal criminal police office.

The probe was prompted on the grounds of greenwashing allegations against both firms, which include giving false information about the firm’s products or environmental, social, and governance (ESG) credentials.

DWS CEO, Asoka Woehrmann, decided to step down post the probe and stated the allegations “have left a mark” and were a “burden” for both himself as well as the firm.

Sri Lanka-born Woehrmann joined Deutsche Bank in 1998 and took the helm of DWS in 2018 after its spin-off from the former. Woehrmann will exit his role after the annual general meeting to be held on June 9. He will be replaced by the Head of Deutsche Bank’s Corporate Bank, Stefan Hoops.

A DWS spokesperson claimed that the firm has “continuously cooperated fully with all relevant regulators and authorities on this matter and will continue to do so.”

According to a report, investigators have found “sufficient indications” that the ESG norms were applied to only a handful of investments, which is in contrast to the claims made by DWS in its sales prospectus.

ESG has gained tremendous importance recently, with all companies trying to meet the climate targets and ESG standards of governance. Investors are lured into investing huge sums of money by making false claims about environmentally friendly products, called “greenwashing.”

DWS has been under the radar since 2021, for the alleged fraud, after statements made by a former DWS Head of Sustainability triggered the U.S. securities regulators to look into the matter.

On the other hand, Deutsche Bank has been trying to wash its slate clean on several allegations, including money laundering, securities and regulatory breaches, and interest rate manipulation.

Wall Street’s Take

The Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on four Buys, one Hold, and one Sell. The average DWS Group price target of €40.08 implies 28.1% upside potential to current levels.

Concluding Notes

Greenwashing is a serious offense and any evidence found for the same will result in huge fines for both firms. Additionally, the cautionary tone of analysts suggests waiting and watching as the story unfolds.

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