Can greenwashing help define ESG?

This article was first published in the Independent Online on 21 June 2022.

German law enforcement officers recently raided the Frankfurt headquarters of Deutsche Bank and DWS (a German asset manager that is 80% owned by Deutsche Bank), as part of an ongoing investigation into allegations of greenwashing by DWS. The prosecutors told media afterwards that they had evidence that environmental, social and governance (ESG) factors “were not taken into account at all in a large number of investments”, despite DWS proclaiming in its annual reports that its products were green and sustainable. Essentially, that DWS has been greenwashing.

The term greenwashing is extremely broad and rather vague. It can mean anything from overzealous marketing campaigns to, in DWS’s case, investment (or prospectus) fraud. It covers all manner of misdeeds, from mischievousness to outright criminal behaviour.

If ESG is the practice of incorporating non-financial factors into business processes, then greenwashing is the art of pretending to do so. Greenwashing has become increasingly ubiquitous as pressure grows on companies to demonstrate that they are acting to address global crises like climate change. Greenwash of one form or another is almost routine: ESG – Eat, Sleep, Greenwash. It has been so abused and appropriated that the entire discipline is now under serious review. And the review itself is a new battleground.

Greenwashing charges

The DWS case is not the only example of legal action taken against greenwashing. At least five cases have been brought in the last four years in Australia, Denmark, France, the US, and at the OECD, each of which alleges that greenwashing by fossil fuel companies (and a meat producer in one case) violates either consumer protection or advertising laws. Besides these cases, there have been several rulings from advertising and competition authorities around the world; in some cases requiring the withdrawal of adverts and in one, the banning of fossil fuel adverts in subway stations.

While this is promising, there haven’t yet been any serious consequences for greenwashing, and most of the cases have a way to go before they are decided. And yet for a long time, we have seen the most egregious examples of greenwashing – in the news, on social media and in companies’ annual reports. This raises very serious questions: how much of this can continue to go unaddressed? Can companies just lie in the name of advertising and get away with it? And is there any threshold for when this rampant practice will attract consequences? The DWS case shows us that there might be; greenwashing is clearly serious when it misleads investors.

In fact, the US Securities Exchange Commission has included greenwashing in its 2022 list of priorities for examinations and investigations. It also began investigating the DWS case late last year, and very recently it has come to light that it is looking into greenwashing at Goldman Sachs.


The DWS case is so interesting, not only because most of us are a little thrilled by the idea of police officers in dark uniforms raiding otherwise staid corporate offices, but also because it comes at a time when the concept of ESG is under global review – under attack in some quarters. What is ESG integration actually trying to achieve and why does it so often go wrong?

For the less subtle critics, the fact that ESG is problematic means it should be abandoned altogether. For example, when ExxonMobil was included in the top 10 of S&P 500’s ESG Index, and Tesla was excluded from the list, Elon Musk tweeted that “ESG is a scam. It has been weaponised by phony social justice warriors.” He was right to be cross about ExxonMobil, but it is companies that have weaponised ESG, not those who advocate for responsible business practices. ExxonMobil made it onto the list because the S&P assessment does not account for companies’ greenwashing.

So ESG is ripe for review, but for those who still believe that the real challenge is the underlying need to incorporate non-financial externalities into business processes, ESG needs refinement, clarification and, most crucially, consequences – for failing to integrate ESG and especially for lying about it. Greenwashing challenges are the tools (or weapons if you’re Musk) for this process of defining ESG: crystalising not just what constitutes greenwashing, but what its consequences will be.

The lines are being drawn and redrawn as to what society will and won’t accept. Inevitably, those that are served by it will attempt to undermine the idea that greenwashing should be regulated, but cases like DWS, which will become increasingly common, are not working in their favour. And by finding out and punishing what it isn’t, we can move towards a more complete picture of what ESG really is. Companies must note that greenwashing is not just a smart way to clean your reputation. If investors are making decisions based on false claims, then it is, quite simply, fraud.

By: Emma Schuster

IMAGE: 123RF / pedrosala

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