Green funds: suspected greenwashing of financial investments



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Status: 10.12.2021 6:00 a.m.

Many funds use the ESG sustainability label to advertise allegedly particularly environmentally friendly financial investments. But behind this, there are often “dirty” businesses, as a new study shows.

By Verena von Ondarza, NDR

The name of the fund sounds promising: Xtrackers MSCI Europe Energy ESG Screened ETF – an investment in the energy industry – with a special focus on sustainability. That sounds like wind energy, solar energy or maybe hydrogen projects.

The ESG in the name of the fund stands for “ecologic, social, goverance” (roughly: ecological, social, good corporate governance). This label is given to funds that allegedly invest money in a particularly sustainable way, i.e. invest in companies that are particularly environmentally friendly or socially responsible or that are characterized by good corporate governance.

The Europe Energy ESG Screened Fund is published by the German banking subsidiary DWS. It advertises its sustainable funds on the Internet with the fact that investors promote “resource-saving and efficient processes and climate-friendly products” – a full-bodied promise that the DWS apparently does not keep.

Study: Only a fraction of the funds unencumbered

The non-governmental organizations Facing Finance and Urgewald jointly examined 2000 funds. The results are that Ed in advance and be astonished: Of the investments examined, the NGOs rate only 104 as completely unencumbered. 650 describe themselves in the investor information as “sustainable”, but often also invest in companies that are among the largest greenhouse gas emitters and thus cause massive damage to the environment.

In some cases, they also violate other sustainability criteria such as the ban on the arms trade. “An indication that the financial industry is using the word sustainability as a pure marketing tool to sell products,” says Thomas Küchenmeister from Facing Finance, because sustainable financial products are the best seller. The demand for funds and other investment products bearing ESG in their name has increased by more than 100 percent in the past year.

Oil and gas fund with ESG label

In the list of NGOs, several DWS funds stand out – especially the DWS fund Europe Energy ESG Screened ETF mentioned. On closer inspection, it turns out to be a pure oil and gas fund. Investments are made here exclusively in fossil energy. Christian Klein, Professor for Sustainable Investment at the University of Kassel, has been researching the topic for years and also observes that the DWS is trying to “do it properly”.

But DWS’s energy fund surprises him too, as it invests almost exclusively in fossil fuels and the associated supplier industry: “Usually, sustainable funds say that you can invest in fossil fuels to a certain extent.” But this fund is “an amazing thing,” he adds.

The asset manager DWS refers to the Ed that it is a special fund for the oil and gas sector, and that “only conventional energy producers such as oil and gas can be assigned to this sector”.

Regulatory loophole exploited

At the same time, the DWS emphasizes the sustainability criteria that have been set for the fund: It is not illegal for such a fund to be labeled as “sustainable”, but rather has to do with a loophole in EU regulation. In the fund documents, the ESG label is based on the EU disclosure regulation. The EU regulation allows financial products to be described as sustainable if they make it clear which criteria the fund uses to define sustainability.

So far, providers have been able to define these criteria themselves. In the case of the DWS fund, the asset manager specifies the exclusion of weapons, tobacco, coal mining or oil production from oil sands as sustainability criteria. Most of these branches of industry do not play a role for a well-developed oil and gas fund anyway.

Critics call for quick reform

A fund becomes sustainable by excluding products with which it has nothing to do with – a design flaw in the EU disclosure regulation, believes Christian Klein from the University of Kassel. Many fund managers were surprised that they were suddenly able to put a sustainability label on their products. The EU Disclosure Regulation has been in force since March 2021. The DWS fund has had the label since August, although it has been around since 2007.

Christian Klein and Thomas Küchenmeister are now hoping that the EU will clarify its regulation. The process for this is already running. The first part of a new set of rules for evaluating the sustainability of financial products was approved by the EU this week and will come into force at the beginning of next year: the EU taxonomy.

However, the question of how energy sources are evaluated is still open. The evaluation of gas and nuclear power is currently the subject of heated disputes at the EU level. And as long as this dispute lasts, a pure oil and gas fund can call itself “sustainable”.

Suspicion of greenwashing in “sustainable” funds

Verena von Ondarza, NDR, December 10th, 2021 6:25 am


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