The greenwashing scandal surrounding Deutsche Bank's fund company, DWS, is a warning signal for the asset manager industry.

Exposing oneself to the accusation of greenwashing, i.e. classifying investment products as greener or more sustainable than they actually are, can not only lead to investigations by the public prosecutor’s office and supervisory authorities on suspicion of capital investment fraud, as in the case of DWS, but is also associated with enormous reputational damage.

Nordea Asset Management (AM), the capital investment company of the large Scandinavian bank, is aware of this.

Markus Fruehauf

Editor in Business.

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Since the late 1980s, asset managers have been dealing with capital investments that are geared towards the environment, social development and good corporate governance.

The abbreviation ESG has prevailed on the capital market after the English terms environment, social and governance.

For the asset managers at Nordea, the three terms are closely linked. For them, sustainability without social goals and respect for human rights is unthinkable.

At a conference in Copenhagen to which Nordea AM invited journalists earlier this week, Eric Pedersen, Head of Responsible Investment at Nordea AM, emphasized the importance of ESG for investment strategy: “The VW diesel scandal showed how sustainability risks cost investors money can cost.” In the past, ethical investments were associated with costs for investors.

Now they offer a higher, risk-adjusted return.

Sustainable investing was first practiced by Nordea in 1988 when such products were launched in Sweden for the church and trade unions.

It is striking how hard the Scandinavian asset managers are trying to avoid any suspicion of greenwashing.

Three safety nets

According to Hilde Jenssen, Head of Fundamental Equities, i.e. stock investments, investors are offered full transparency about the positions.

In addition, the company's greatest sustainability risk is examined.

The cumbersome technical term for this is Principal Adverse Impact, which examines how investment objects such as public limited companies can affect the environment, social development, labor and human rights.

Finally, Jenssen cited internal assessment methods (scoring) as a third safety net.

In her view, the Ukraine war proves that assessments can change over time.

This showed how important the old fossil fuels are.

"We cannot neglect the security of the energy supply in our sustainable investment strategies either," said Jenssen.

controversy over nuclear power

The EU Commission is also trying to define sustainable investment strategies more precisely and to protect investors from greenwashing.

With the taxonomy, she has created an extensive set of rules that has also shown how different opinions on the subject of nuclear power can differ.

While nuclear power is rejected in Germany, it is considered sustainable in France.

The Commission followed suit and classified nuclear power as a transitional technology and thus as suitable for sustainable systems.

However, the European Parliament is currently resisting.

The Disclosure Ordinance and the classification of funds according to Article 8 or 9 are important for fund companies. Article 8 funds take ESG criteria into account in their investments.

Article 9 funds want to have a sustainable effect, which is much more complex and difficult.

Nordea AM has a total of EUR 273 billion under management, of which EUR 175.2 billion is invested according to responsible criteria.

Only a few funds, such as the Nordea 1 Global Climate and Environment Fund, pursue sustainable effects.

The Article 9 Fund had to be closed to new investors in February 2021 after having grown by around 500 percent in the previous two years to a total volume of more than 6 billion euros.

The soft closure was intended to protect the interests of existing shareholders.

More important at Nordea AM are the Article 8 funds, which take ESG goals into account but leave a little more leeway.

Because Nordea AM also wants to consciously invest in the transformation of the economy, as Dan Sauer, Managing Director of the German unit of Nordea AM, explained: "This gives us the opportunity to seize opportunities that the market has not yet recognized.

In addition, we can have a greater influence on the transformation of companies.”