Are Environmental, Social, and Governance Fund Managers Mis-advertising Their Products

From Bloomberg: The heat was really turned up last week when the U.S. Securities and Exchange Commission and BaFin, Germany’s financial regulator, initiated a probe into allegations that Deutsche Bank AG’s DWS Group asset-management arm has been misstating the environmental—and possibly the social—credentials of some of its ESG-labeled investment products. 

Would it come as a surprise to anyone that ESG fund managers are doing in finance what manufacturers of consumer products have been doing for decades?  Greenwashing is a part of every customer’s experience as he walks through the aisles at Costco, wondering what “eco-friendly” actually means in the ingredient list of some canned tuna or laundry detergent.

What we’ve learned about humankind is that if there is a way to cheat, people will find it. And, though this has amplified over the past few years, it’s an ancient societal woe.  There were coin counterfeiters in Ancient Rome.

Now, of course, we have cheating on a scale that would have been inconceivable until recently.  We have people at Volkswagen who got together and said, “To make us a few more Euros, we’re going to cheat 11 million customers and reduce the air quality of all 7.8 billion people who live on this planet.  If someone had made that suggestion in a meeting 20 years ago, he would been fired on the spot and ushered out by security.

In any case, it would be more remarkable if ESG managers didn’t cheat.