DWS CEO Asoka Woehrmann Quits
The big news covered by about every news outlet is that Woehrmann resigned the day after a raid by German police on the firm’s Frankfurt offices. ESG Today reported on this, as did ESG Investor. The raid was undertaken by German criminal authorities in connection with claims the firm made relating to its ESG funds as I wrote yesterday.
Our view: This is a stunning development that the whole of the ESG world will be watching, especially given the SEC’s new proposed regulation of ESG funds. It is also another indication that fraud is a key risk in ESG – a matter covered in our recent podcast “Fraud Detection in ESG” and our E&S Data Validation Guidebook. There is also a detailed blog from this spring highlighting parallels between the Theranos fraud and ESG/climate.
Our newest Guidebook on FTC’s Green Guides is now available to members. Although the Guides focus on advertising and marketing claims about environmental performance and attributes of products, they are instructive in how companies (and funds) may want to evaluate public ESG statements about their company or products. The Guidebook can help prevent making fraudulent ESG statements that create legal liabilities and financial risk.
ESMA, CFA Publish Guidance on ESG Investment Risks & Disclosures
The European Securities and Markets Authority (ESMA) published a new briefing document on sustainability risks and disclosures in the area of investment management. This is interesting timing given the DWS situation and the SEC’s proposal. The briefing is intended as guidance to be used by European national regulatory authorities (referred to as “National Competent Authorities (NCA)” and is non-binding. ESMA states the document
… is designed around a risk-based approach to supervision, meaning that the intensity and frequency of the sustainability related supervision of investment funds are determined based on the assessment of the risks affecting these funds. This refers to the whole set of procedures, processes, mechanisms and practicalities allowing competent authorities to exercise their supervisory powers in a way that is commensurate with the identified risks.
Competent authorities are encouraged to be proportionate in their supervision. The extent of information sought, and the frequency and intensity of supervisory engagement should consider elements such as the type of assets the fund manager intends to invest in, the complexity of the investment policy and strategy of the fund and the type of investors in the investment fund. The engagement should also be commensurate with the risks identified.
Among the key points of guidance, the briefing covers:
- Verification of the consistency of information in the fund documentation and marketing material.
- Verification of the compliance with the website disclosures’ obligations.
- Verification of the compliance with the periodic disclosures’ obligations.
In a similar move but from a non-regulatory origin, the CFA Institute – a not-for-profit association of investment professionals – also published their Handbook for Global ESG Disclosure Standards for Investment Products.
The Global ESG Disclosure Standards for Investment Products (the “Standards”) are ethical standards based on the principles of fair representation and full disclosure. They are designed to communicate information about an investment product’s consideration of environmental, social, and governance (ESG) issues in its objectives, investment process, or stewardship activities…
The scope of the Global ESG Disclosure Standards for Investment Products focuses narrowly on disclosure of the ESG approaches used in an investment product.
Our view: These may give the SEC some crib notes on things to consider in their ESG fund proposals. Even before the SEC rules are finalized, fund managers and marketing/sales staff may want to use the new ESMA and CFA resources as references.
New Information from CBP on Uyghur Forced Labor Prevention Act (UFLPA)
June 21, 2022 is the statutory date on which the US importation ban begins under the UFLPA for cotton, tomatoes and polysilicon mined, produced, or manufactured wholly or in part with forced labor from the People’s Republic of China, especially from the Xinjiang Uyghur Autonomous Region (XUAR). Law firm ArentFoxSchiff posted an article stating:
While US importers were eagerly anticipating the issuance of technical guidance regarding implementation of the UFLPA from CBP last week, which is now expected this week, CBP did post a new guidance document summarizing the UFLPA and forced labor Withhold Release Orders (WRO) enforcement mechanisms. Specifically, CBP’s authority to detain merchandise under the UFLPA will be pursuant to 19 CFR § 151.16, which provides for a much different timeline for the detention of merchandise than the WRO process. Under this process, if Customs does not make a timely decision regarding admissibility, goods are automatically excluded…
This is a much shorter timeline than the WRO process. Importantly, a company contesting CBP’s detention of merchandise pursuant to the UFLPA would be required to submit documentation to rebut the presumption within the 30 day period that CBP is assessing admissibility, whereas the WRO process permits 90 days. Like the WRO process, the importer may also file a protest 180 days after CBP makes its final determination regarding the exclusion.
The law firm also summarized a few points that came from a CBP Listening Session, the most important of which seem to be:
- Clear and Convincing Evidence Required to Rebut the Presumption that Merchandise was Produced with Forced Labor. It was confirmed that the UFLPA will have a much higher burden of evidence required to rebut the presumption that merchandise was produced with forced labor than that of a WRO. Any exception to the rebuttable presumption must be reported to Congress, and thus the level of evidence that will be required to overcome the rebuttable presumption is very high.
- Detention of Merchandise. If goods are detained by CBP because they are suspected of having a nexus to Xinjiang Uyghur Autonomous Region (XUAR) of the People’s Republic of China (PRC), importers may either provide clear and convincing evidence that merchandise was not produced with forced labor or export the products. If detained products that fall under the UFLPA are comingled with other products that are not subject to the UFLPA, importers may request the segregation of the merchandise that is not subject to the UFLPA.
Our view: We eagerly await CBP’s guidance regarding its enforcement of the rebuttable presumption and the UFLPA. As stated in ArentFoxSchiff’s memo – “[i]mporters are advised to start conducting due diligence on supply chains in order to ensure that they will be able to obtain documentation should merchandise be detained once the rebuttable presumption goes into effect. Importantly, products that are subject to an existing WRO from Xinjiang will now be enforced under the UFLPA process instead of the WRO process.”
White House Proposes Plan for US Action on Water Security
Vice President Harris announced the White House Action Plan on Global Water Security. Citing “water security is central to human and national security,” the plan outlines three pillars to the plan:
Pillar 1: Advancing U.S. leadership in the global effort to achieve universal and equitable access to sustainable, climate-resilient, safe, and effectively managed WASH services without increasing greenhouse gas emissions.
Pillar 2: Promoting sustainable management and protection of water resources and associated ecosystems to support economic growth, build resilience, mitigate the risk of instability or conflict, and increase cooperation.
Pillar 3: Ensuring that multilateral action mobilizes cooperation and promotes water security.
Our view: What may be of greatest interest to companies is the six-page Annex that provides Regional Water Security Snapshots. Companies operating in these regions and needing water for operations should review the Annex. If differences are found between current company assessments, risk profiles or future operating plans/expectations related to water use, it would be prudent to evaluate the differences and determine if changes are warranted.