ESG Weekly Update – June 14, 2022

14 June 2022

Germany: Deutsche Bank and DWS Group Raided on Allegations of Greenwashing

Last week, in response to allegations of greenwashing, German police and financial regulatory authority BaFin raided Deutsche Bank AG’s Frankfurt offices and those of DWS Group, the asset manager majority owned by Deutsche Bank.

BaFin’s investigation into DWS began last summer, following allegations raised by its former Chief Sustainability Officer, Desiree Fixler, that the firm inflated its ESG credentials by claiming that hundreds of billions of assets it was managing were “ESG integrated,” despite a lack of action by fund managers.

Following the raid, DWS CEO Asoka Woehrmann announced his resignation; Stefan Hoops, currently the head of the Deutsche Bank’s corporate bank, will succeed Woehrmann in the position.

This is the first time an asset manager has been raided in an ESG investigation and signals increased aggressiveness by European regulatory authorities when it comes to enforcement action related to greenwashing.

Deutsche Bank, DWS Raided Over Allegations of Greenwashing

UK: Environmental Audit Committee Announces Official Inquiry

On May 30, the UK Environmental Audit Committee (EAC) announced an official inquiry and call for evidence into the role of the financial sector in the UK’s net zero transition. Specifically, the EAC stated that it would examine “the role of financial institutions, including UK signatories to the Glasgow Financial Alliance for Net Zero (GFANZ), in winding down the financing of fossil fuel extraction and promoting the transition to green energy in pursuit of the Government’s climate and environment targets.”

In announcing the inquiry, the EAC highlighted the importance the UK government has placed on the role of finance in supporting the net zero transitions, noting the emphasis given to the issue during the COP26 conference in Glasgow last November, which the UK hosted.

Commenting on the work of organizations such as GFANZ, the EAC was supportive of the progress made to date—remarking on the increased use of net zero statements as part of the corporate climate strategies of banks, insurance companies, pension funds and asset managers—but noting that ultimate success will depend on the “signatory firms following through on their commitments effectively, and on others joining them.”

The EAC invites review of the investment strategies of investors with a British presence and announced the following areas of focus with respect to initiatives and their corresponding impact:

  • Corporate approaches to financing existing and planned fossil fuel projects;
  • The potential effectiveness of the financial sector, including through alliances, such as GFANZ, in encouraging the decarbonization of the economy sufficiently to limit global temperature rise to 1.5°C;
  • Pathways to reducing investment in fossil fuel extraction;
  • Current and planned investment in renewable energy generation, distribution and storage;
  • The effect (if any) on the pace and scale of disinvestment plans resulting from Russia’s invasion of Ukraine and any efforts to mitigate such effects; and
  • Likely pathways to the responsible retirement of fossil fuel assets, in a manner compatible with the UK’s national interest, reducing the risk of stranded assets and meeting the UK’s international climate obligations.

The EAC is accepting submissions until June 30.

EAC Announcement

Global: World Bank Carbon Pricing Report Announces $84 Billion in Revenues

On May 24, the World Bank released its annual report on the State and Trends of Carbon Pricing, which found that carbon pricing revenues increased during the most recent period measured by 60% above 2020 and reached a record amount of $84 billion.

Carbon pricing is a policy tool used by governments with the goal of incentivizing a reduction in carbon emissions by monetizing the external costs of greenhouse gas emissions and relating those costs to the emissions’ sources.

The World Bank cited new carbon pricing instruments and higher carbon prices in the European Union, Singapore, California and Korea, among others, as being central to this increase in revenue.

Carbon pricing instruments take various forms, including carbon taxes, through which governments levy a fee on emissions, and emissions trading systems, which place a cap on the total volume of emissions on the basis of which governments auction or distribute emission allowances or give tradable credits to entities who produce emissions below the baseline.

Despite record revenues, progress on carbon pricing has fallen short of what’s needed to meet the Paris Climate Agreement’s target of limiting global warming to 1.5°C, with only 4% of global emissions covered by a direct carbon price currently.

Further developments are expected in the years to come. The EU is expected to adopt a Carbon Border Adjustment Mechanism aimed at reducing the risk of carbon arbitrage resulting from uneven climate policies across individual EU member states. In addition, discussions related to the formation of international climate clubs are taking place, including that between the U.S. and EU, referred to as the “Carbon-Based Sectoral Arrangement on Steel and Aluminium Trade.” The International Monetary Fund and the World Trade Organization have advanced calls for an international carbon pricing floor, and the International Maritime Organization is developing measures that would reduce emissions from international shipping.

State and Trends of Carbon Pricing 2022
Press Release

Global: G7 Ministers Agree on Measures to Curb Global Reliance on Fossil Fuels

Energy and environment ministers from all G7 countries have pledged to end direct international funding for fossil fuel projects by the end of 2022, with the G7 hoping to shift an estimated $33 billion per year to clean energy sources. The G7 also agreed to eliminate fossil fuel subsidies by 2025, citing their inconsistency with commitments made as part of the Paris Climate Agreement. Additionally, the ministers agreed to increase climate financing to assist developing countries in reducing emissions.

This represents the first comprehensive agreement by all G7 countries to address the climate change implications of fossil fuels. The agreement includes targets related to decarbonizing the transportation sector by 2030 as well as greater cooperation on green hydrogen projects and tighter regulations on deep-sea mining.

Offshore Energy