Legal Options for Investors Concerning Greenwashing
Sustainability has also made its way into the capital market, at least according to the wishes of investors. For many investors, not only the expected return on an investment is a reason for investment but also its sustainability. However, caution is necessary because not every investment that has been given a “green” appearance is truly ecological and sustainable. Investments are often portrayed as more sustainable than they actually are. This is referred to as “greenwashing”.
Greenwashing occurs when providers present their investments as more sustainable than they are in order to attract investors. False or misleading information in prospectuses or provided by investment advisors about the sustainability of an investment can lead to claims for damages by investors, according to the commercial law firm MTR Legal Rechtsanwälte, which also advises on capital market law.
ESG Criteria in Investment
The desire of many investors for a sustainable investment that meets criteria such as environmental protection, climate friendliness, or social responsibility has been recognized by issuers of financial products, and they have included sustainable investments in their offerings. Key points here are the so-called ESG criteria – Environment, Social, and Governance. These aspects are becoming increasingly important to investors in their investment decisions. However, financial products do not always deliver what they promise in terms of environmental protection, social responsibility, or corporate governance.
For example, the investment arm of Deutsche Bank, DWS, has come under scrutiny for allegations of greenwashing. In this context, there was a raid by the public prosecutor’s office and the police some time ago regarding the initial suspicion of investment fraud, specifically concerning allegations of greenwashing. According to the public prosecutor’s office, the DWS had exaggerated the sustainability criteria of their investments.
DWS to Pay Fine in the USA
DWS has faced allegations of greenwashing not only in Germany but also in the USA. While investigations in Germany are still ongoing, in September 2023, DWS was fined 19 million dollars in the USA.
The US financial regulator SEC investigated the advertising claims and compliance with the global ESG guidelines by DWS. The investigations concluded that DWS had presented the sustainability aspects too positively. They had made “significantly misleading statements” about their control and implementation of the ESG criteria. With the payment of the fine of 19 million dollars, the investigations in the USA have concluded.
However, the investigations in Germany are not yet complete. It is expected that DWS will also have to pay a multi-million dollar fine in Germany. However, this would only conclude the official investigations. Investors in the affected DWS funds could demand their investments back or file claims for damages due to the possibly misleading advertising statements.
Claims for Damages by Investors Due to Greenwashing
Claims for damages may also have arisen against the investment advisors. Since August 2022, investment advisors, whether they are bank advisors or independent investment advisors, must inquire from their clients how important sustainability aspects are to them in their investment decisions and suggest appropriate investments accordingly. In the course of proper investment advice, clients can only be offered financial products that take into account their desire for a sustainable investment.
In addition to DWS, other providers of financial products may have presented their financial products too positively in terms of the ESG criteria. If this is the case, affected investors can assert legal claims. If they were misled by deceptive advertising to invest in a particular asset, they can demand their money back. This claim exists because they probably would not have invested in the financial product under the same conditions if they had known that the investment was not as sustainable as presented.
MTR Legal Rechtsanwälte is a law firm experienced in capital market law and advises on greenwashing and other investment-related issues.
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