The international news media have publicly reported that German law enforcement has raided an asset manager concerning a "whistleblower's allegations that [the asset manager] sold investments as 'greener' or 'more sustainable' than they were, a practice known as 'greenwashing'." This action by German prosecutors reflects a broader concern by financial regulators about the issue of greenwashing, as reflected by a recent $1.5 million issued by the SEC against a U.S. firm concerning similar allegations.
Indeed, last week the SEC issued extensive proposed regulations that would combat "greenwashing" by compelling firms to detail how their investments reflect ESG principles, and prohibiting funds from bearing names incorporating ESG references without also adopting ESG investment principles.
Based upon these enforcement actions, and these newly proposed regulations, it is clear that global financial regulators are focused on the issue of "greenwashing," and are actively taking steps to combat this practice.
Regulators and policymakers have pledged to clamp down on companies making exaggerated claims about the sustainability credentials of their products as they try to cash in on booming demand for ESG investing. Enforcement action has been minimal so far, although watchdogs are beginning to tighten the screws.
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