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Keeping you in-the-know on environmental, social and governance developments

Responsible Investor and Financial Times both reported on a shocking development in Germany concerning ESG funds. The Responsible Investor article said:

The Frankfurt public prosecutors’ office confirmed in a statement that approximately 50 people across its own department, the federal criminal police office and Germany’s financial supervisory authority (BaFin) are involved in the operations that are aimed at “previously unknown employees and managers at DWS”.

In a statement, the prosecutors’ office said: “after examination, there were sufficient factual indications that, contrary to the information in the sale prospectuses of DWS fund, ESG were actually only taken into account in a minority of the investments, but were not taken into account in a large number of investments (‘prospectus fraud’).”

This action comes days after the US SEC voted to issue two proposals impacting ESG funds in the US which we wrote about last week. It will be months before a rule is finalized – if a final release is even issued by the Commissioners after public comment and staff review. Any final version may also contain significant changes from the proposal. However, we have already seen SEC’s Climate and ESG Task Force in the Division of Enforcement – that has a mandate to identify material gaps or misstatements in issuers’ ESG disclosures – go after Vale and BNY Mellon Investment Adviser, Inc. for misstatements and omissions about Environmental, Social, and Governance (ESG) considerations. Granted, SEC enforcement is probably not the same as having your offices stormed by armed police officers, but that could be a possibility in the future depending on how aggressive SEC enforcement decides to go.

Regulatory enforcement is not the only ESG risk faced by companies. Litigation in the US is gaining momentum as we wrote two weeks ago.

In the meantime, companies and fund managers alike would benefit from a refresher on the US Federal Trade Commission’s “Green Guides for Marketing”. The Guides focus on advertising and marketing claims about environmental performance and attributes of products, yet they are instructive in how companies (and funds) may want to evaluate public ESG statements about their company or products. We have a new Guidebook on the FTC Green Guides that will be published later this week for members.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile