The asset manager DWS, under investigation for alleged greenwashing, has earmarked an additional €21m for potential regulatory fines in the first half of 2023, raising its total reserve to €27m.

This preemptive move comes amid  environmental, social and governance compliance practices, with and regulators focusing on whether DWS may have overstated the “green” status of its funds.

In its published on Wednesday 26 July, DWS noted, “We are engaged in advanced resolution discussions with the US SEC to resolve their ESG investigation, although the final outcome is yet to be concluded.”

Beyond the €27m allocated to “other provisions”--which encompass regulatory enforcement and several specific items related to diverse circumstances--DWS has set aside an extra €21m for operational risk and €8m for civil litigation provisions as of 30 June 2023, bringing the total provision to €56m.

This marks a substantial increase from the €36m provision made in June of the previous year, signalling the heightened legal risks DWS anticipates in the current regulatory climate.

Operational challenges

DWS has also faced operational implications from its parent firm’s past actions. Following Deutsche Bank’s prior criminal convictions, DWS required an exemption to continue its qualified professional asset manager (QPAM) status under the US Employee Retirement Income Security Act.

The exemption, granted by the US department of labour, is set to expire on 17 April 2024. This necessitates that DWS secures a further exemption by 18 April 2024, to avoid a lapse in QPAM status.

Earnings

Despite this challenging backdrop, the firm has reported net flows (excluding cash) increasing to €10.4bn in Q2 2023, translating to €19.2bn for H1 2023.

ESG funds, in particular, attracted net inflows of €1.9bn in Q2, despite the ongoing scrutiny.

Moreover, DWS’s assets under management expanded by €19bn to reach €859bn in Q2 2023, indicating investor confidence and successful capital deployment.

Additionally, the company reported a 10% increase in adjusted revenues to €668m in Q2 2023. Adjusted profit before tax surged 27% to €260m in the second quarter.

Departures

DWS also that its chief financial officer, Claire Peel, plans to resign from her role on the DWS executive board by the end of the third quarter of 2023, a position she has filled since 2018.

Alongside this, Karl von Rohr intends to relinquish his role as chairman on 31 October 2023, aligning with the termination of his existing contract as a Deutsche Bank management board member.