German law enforcement officials raided the offices of Deutsche Bank on suspicion of the fraudulent advertising of sustainable investment funds at its DWS unit, dealing yet another setback to CEO Christian Sewing’s attempts to move on from years of corruption scandals.
The investigation revolves around allegations—leveled by a former DWS manager—that the retail money management business engaged in “greenwashing,” in which environmental, social and governance (ESG) investments are sold under false claims.
Roughly 50 officials from the Frankfurt public prosecutor, German securities regulator BaFin, and the federal criminal police office BKA were deployed to the headquarters of the two financial institutions to seize evidence on Tuesday.
“The allegations are that DWS has been advertising so-called ESG financial products for sale as being particularly green and sustainable when they actually weren’t,” a spokesman for the public prosecutor told Fortune, which has been looking into the claims since January. “In the course of our investigations we’ve found evidence that could support allegations of prospectus fraud.”
Officials are currently still searching headquarters at the time of writing, after a search warrant from the city’s district court was issued. No information was provided by the prosecutor’s office as to the extent of evidence confiscated.
Sewing took over leadership of the scandal-prone bank back in April 2018 and has steadily been shepherding the institute back towards health and respectability.
Shares in the lender, which owns nearly 80% of DWS, fell 1.9% in trading on Tuesday. The fund manager at the center of the controversy saw its stock sink 5.3%, underperforming declines in the broader German blue-chip index DAX.
DWS stands by denial
The former head of sustainability at DWS, Desiree Fixler, warned last year that the company had made misleading statements in its 2020 annual report, in which supposedly more than half the group’s $900 billion in assets under management were invested under ESG criteria.
In an interview published in English last year, Fixler told Der Spiegel she was caught off guard by her dismissal after only eight months on the job amid efforts to end misrepresentation of ESG investments. She is now pushing for the audit report into the ESG investments to be made public.
“ESG is complex and still in its infancy, so it is understandable if fund managers lag behind. But it is quite another thing to deliberately provide false information,” she told the weekly. “It is terrible when executives misuse this issue as a marketing tool.”
In the statement made at the time, DWS said it “firmly rejects” the allegations made by the former employee as “unfounded.”
Deutsche Bank did not respond to a request for comment by Fortune.
“We have continuously cooperated fully with all relevant regulators and authorities on this matter and will continue to do so,” a spokesperson for DWS told this publication, reiterating it stands behind its denial from last August.
DWS revised its product classification approach after the EU-wide Sustainable Finance Disclosure Regulation (SFDR) went into effect in March 2021.
ESG investing has become increasingly important for professional investors looking to avoid getting saddled with stranded assets that will depreciate quickly in a low-carbon economy, but reputational factors have recently created confusion about what exactly is considered ESG. For instance, earlier this month Standard & Poor’s removed Tesla from its ESG 500 index while oil giant Exxon remained, prompting an outcry from the founder of the world’s largest electric vehicle maker.
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