Finanzwende, a German association advocating for a fairer and more sustainable financial system, has called on the country’s financial supervisory authority, BaFin, to step up its efforts to combat greenwashing.
The association is pushing BaFin to check whether financial market players, in particular asset managers and banks, abide by the rules and take action “systematically” against violations when it comes to greenwashing, Finanzwende said, introducing a study on the matter.
This, Finanzwende said, applies to both requirements for financial products, such as green funds, and self-commitments on climate.
Widespread greenwashing practices can be fought only if financial market players “realistically expect consequences for false promises” made with regard to sustainable products, it added.
The association has conducted a study on 90 “greenwashing events” occurring between 20021 and 2024, relating to listed asset managers and banks, to highlight how their stock prices fall when a supervisory authority starts an investigation on greenwashing.
A case that exemplifies the results of the study is the greenwashing scandal that rocked DWS in the past couple of years.
The announcement regarding the investigations started by the Securities and Exchange Commission (SEC) in the US and BaFin in Germany led to a price loss of 17% for DWS, compared with price fluctuations expected without the announcement, according to the study.
Finanzwende’s study concluded that investors and capital markets usually only react to greenwashing when financial regulators take action, investigate and, if necessary, impose penalties.
If a regulator such as BaFin or the SEC starts an investigation into greenwashing cases, the share price of listed asset managers or banks involved falls by an average of 6%, compared to the expected share price without the intervention of a supervisory authority.
If the authorities search the offices of an asset manager or a bank, the prices fall on average by a further 5%, the study disclosed. Such price falls force management to take action, Finanzwende said.
In the case of an investigation by a supervisory authority, investors receive new information to assess the companies’ future prospects, and if they think that a greenwashing case will harm the company financially, they will sell the stocks, and the value of the company sinks, the association said.
This puts management under pressure to stop greenwashing, Finanzwende added in the study.
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