(Bloomberg) -- Institutional Shareholder Services Inc. is backing Elliott Investment Management’s call for a special audit of real estate firm Deutsche Wohnen SE’s loan to its controlling shareholder, its second recent move to support activist proposals in Germany.

Deutsche Wohnen’s loan of as much as €2 billion to Vonovia SE “raises legitimate concerns about potential conflicts of interest and breach of fiduciary responsibilities,” ISS said in a note. Vonovia took control of Deutsche Wohnen in a 2021 deal. While there’s no irrefutable evidence of wrongdoing, an independent investigation by a third-party special auditor would merit shareholder support, it said.

Elliott, which owns a stake in Deutsche Wohnen, argues that the company could have put the money to better use by buying back stock or acquiring more properties. Deutsche Wohnen’s supervisory board has said its review of investment options showed the loan was the most attractive opportunity for the capital. 

ISS said a special audit should examine whether the Vonovia takeover was a factor in granting the loan and whether management took measures to ensure the transaction followed regulations. 

“We believe that the company and its shareholders would benefit from the special audit, which will provide additional transparency into the decision-making at board level,” it said. “There are legitimate concerns about the board’s actions in the context of the Vonovia takeover, which have not been sufficiently addressed by the company.”

Deutsche Wohnen investors will likely vote against the special audit at the upcoming annual general meeting, since Vonovia controls nearly 90% of the Berlin-based landlord’s shares. Still, having a vote is a prerequisite if Elliott wants to eventually ask a German court to appoint a special auditor. 

Spokespeople for Elliott and Vonovia declined to comment, while a representative for Deutsche Wohnen didn’t immediately respond to a request for comment.

In recent weeks, ISS also backed PrimeStone Capital’s call for a board shakeup at Brenntag SE, saying the German chemical company’s strategy doesn’t appear to be working.

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