"Deutsche Bank AG’s DB -3.02% asset management arm, DWS Group, DWS -0.30% tells investors that environmental, social and governance concerns are at the heart of everything it does, and that its ESG standards are above the industry average. But behind closed doors, it has struggled to define and implement an ESG strategy, at times painting a rosier-than-reality picture to investors ..." - The Wall Street Journal, August 1, 2021.
The former executive who presented that struggle to the executive board had been the head of sustainability - Desiree Fixler. She had been fired. That termination was done very soon before the annual report was released. The formal report provided a positive take on the DWS Group's ESG Investments. Was there a cause-effect factor or a correlation between the candid disclosure and the termination? That may never be known.
But what is known is that there are growing questions and escalating confusion about ESG investments. According to MorningStar data, every day $3 billion flow into that niche.
Those questions and that confusion should be no surprise.
There's no clear definition what constitutes this particular kind of investment. That is, one which does double-duty: delivers a return to shareholders and does good for society.
It's a little bit of a stretch to say that an ESG investment can be whatever you call an ESG investment. But not that much of one.
On the Bloomberg Law podcast "Parts Per Billion," David Schultz explains how loosey-goosey this investment niche is. It represents an essentially unregulated area. Yet trillions are in these investments globally.
That could start to tighten up. In the Biden Administration there is an overall focus on more disclosure for investing in general and specifically for ESG funds. SEC proposals for this could begin to be released in October or November. Probably the first step would be to put in-place a standard for what could be classified as an ESG investment fund.
In addition, the CFA Institute is also pushing for guidelines as to what constitutes an investment labeled ESG.
Meanwhile, as Schultz points out, this lack of regulation hurts every player in the game. A scandal about one investment could throw shade on all ESG investments. Think about it. There is an expose about one investment. Quickly, it could become obvious that no one knows what the hell an ESG investment is or isn't. The niche could be shaken to the core. Billions or even trillions could be lost.
Obviously, the corporations in which those ESG investments are made could also be caught up in any unraveling. Currently they wear halos. However, those halos could also become quite wobbly as more questions are asked.
Are they really green? As with Exxon, there could be radical action. Small hedge fund Engine No 1 pulled a board coup by persuading other investors that the corporation wasn't green enough.
How they manage their global supply chain could be assessed as downright inhumane. An outcry could follow to dismantle parts of that chain.
They call that "diversity?" Sure enough there can be a boycott until the business walks the line on that one.
Riding to the rescue could be the ESG practices which major law firms have recently established. Those have anticipated the rethinking of what is the role of the public company today. In more simple times that was thought to be to provide a return to shareholders.
An early adopter of those ESG practices has been elite law firm Paul Weiss, chaired by social-justice activist Brad Karp. On its ESG website, Paul Weiss states:
"Interest on the part of investors and other corporate stakeholders in environmental, social and governance matters has surged in recent years, and the current economic, public health and social justice crises have only intensified this focus. We are committed to providing guidance on critical sustainability and ESG issues for companies and their in-house counsel."
More specifically, Paul Weiss puts its ESG mission this way:
"Business leaders face greater pressure to increase their organizations’ resilience while simultaneously addressing social issues of importance to stakeholders. Our advisory practice helps companies navigate the legal, business and political ramifications of developing and implementing ESG initiatives. We advise on matters such as stakeholder engagement, corporate governance, crisis management, corporate social responsibility, sustainability, diversity and inclusion, ethics and compliance."
The interesting thing about this particular law firm is that it is a Wall Street one. That could mean that its clients could experience a crisis in their ESG investment lines of business. This law firm as well as others serving the financial sector would be representing those clients on regulatory, legislative, and litigation issues associated with ESG investing per se.
Place your sponsored content here on this syndicated site. Affordable rates. Please contact janegenova374@gmail.com.
