Morningstar - Q3 2022 - 25

But investors would be wise to remember
a few things. First, before making important
investment decisions, it's always prudent to remind
yourself of the goals of your portfolio, which may
be incompatible with big changes driven by
short-term considerations. Next, remember that
the link between economic activity and stock
market performance is often tenuous. Companies
and industries have different patterns of
performance, and some can be more resilient to,
or can even benefit from, economic malaise.
On a related note, valuations matter. Investors
will continue to look beyond the current economic
cycle and determine whether the price they're
paying to buy into or hold on to a company
is attractive over the long term. Also, forecasts
about economic activity are never certain,
and there is always a wide margin for error. There
is no current consensus on whether there
will be a recession, even among experts. Like many
other things, negative predictions can take
on more prominence in our minds than positive
or neutral predictions. We are wired that way,
and the media generally obliges.
In that vein, we encourage investors to build their
long-term portfolios to be robust to a variety
of scenarios, of which a recession is only one. In
our view, the inherent uncertainty of markets
makes it prudent to build portfolios for a variety of
potential paths. Positioning all your assets for
a single scenario, such as an upcoming recession,
isn't a great idea.
Michael Keaveney is head of investment management at
Morningstar Canada.
Police Raid Is
a Wake-Up Call on
Greenwashing
GREATER EUROPE
European Union
On May 31, German police raided the headquarters
of Deutsche Bank DB and its asset-management
subsidiary DWS. A day later, DWS said that CEO
Asoka Woehrmann was stepping down.
The public prosecutor's office in Frankfurt
said the raid was based on suspicion of investment
fraud. " The procedure is aimed at previously
unknown employees and managers at
DWS, " senior public prosecutor Nadja Niesen
told Morningstar.
Whistleblower and former DWS sustainability
chief Desiree Fixler set things in motion in
August 2021, when she raised concerns to U.S.
authorities. According to Fixler, DWS had
wrongly claimed that billions of assets under
management included environmental, social, and
governance criteria when in fact they did not.
Investigations have followed in the U.S.
and Germany.
" After an examination, there were sufficient factual
indications that, contrary to the information
in the sales prospectuses of DWS funds, ESG
criteria were actually only taken into account in a
minority of investments but were not taken
into account in a large number of investments, "
Niesen said. It remains unclear which
funds specifically are part of the investigations.
" We infer from Fixler's allegations that the
investigation is centered on funds the firm formerly
labeled 'ESG integrated,' a term that it has
stopped using in its most recent annual report and
that referred to funds where ESG factors were
analyzed alongside other financially material
factors, but where managers retained discretion
over ESG outcomes, " says Natalia Wolfstetter,
director of manager research for Morningstar
She adds: " We remain comfortable with ESG
implementation in the firm's ESG-focused
funds under our coverage: DWS ESG Dynamic
Opportunities, DWS Invest ESG Equity Income, and
DWS Invest ESG Euro Bonds (Short). These
are managed according to DWS' proprietary ESG
standards, which involve exclusions based
on external ESG ratings, carbon ratings, and norms
compliance. However, the firm has not been
able to confirm whether any ESG-focused funds
are part of the broader investigation. "
DWS and majority owner Deutsche Bank have
been tight-lipped throughout the investigation. The
units insisted they had always collaborated
with regulators and public institutions.
DWS did say that the investigations are aimed at
" unknown employees " in connection with
greenwashing allegations.
Greenwashing is considered an industrywide
problem, partly because there is no consensus yet
about what ESG criteria should be. It's too
early to say whether there are other cases like
DWS. However, this might well be a wake-up call
for the industry, and presumably, asset
managers will now take a closer look at their
fund prospectuses.
" Greenwashing is an ESG industry issue that needs
investigation; however, the case of DWS seems
to be extreme, " says Niklas Kammer, equity analyst
for European banks at Morningstar. " I don't
think this affair puts all ESG products in question,
but it does raise the debate both publicly and
between vendors and regulators. In the long term,
this is certainly a positive step for the industry. "
Antje Schiffler is an editor at Morningstar Germany.
EMEA. " We believe ESG integration has
become one of DWS' major strategic initiatives in
recent years, and the firm has made progress
on several fronts, but more remains to be done to
bridge the gap between ambition and reality,
resulting in a Morningstar ESG Commitment Level
of Basic for the firm. "
morningstar.com/products/magazine
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https://www.morningstar.com/stocks/xnys/db/quote https://www.morningstar.ca/ca/author/2852/michael-keaveney.aspx https://www.morningstar.ca/ca/author/3240/antje-schiffler.aspx http://www.morningstar.com/products/magazine
Morningstar - Q3 2022

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