| Hit them where it hurts Greenwashers account for almost a third (30.2 per cent) of all assets held in ESG funds while nearly a quarter (23.8 per cent) of funds that claim to invest according to ESG principles neither hold securities that result in above average or high sustainability ratings nor vote in support of more than 70 per cent of firms’ ESG initiatives.
These figures from the Financial Management Association could be part of the reason why 85 per cent of asset owners polled across seven key markets are in favour of fining product providers who make false sustainability claims.
This week, IAM received research from Cerulli Associates revealing the extent of frustration among European institutional investors, particularly in France and the Netherlands where 97 per cent and 100 per cent respectively wanted financial punishment for greenwashing transgressors.
The most common greenwashing practices, according to more than 50 per cent of the European institutional investors Cerulli surveyed, are managers "overstating or providing unclear messaging about the level of their commitment to sustainability and a lack of alignment between the product’s sustainability name and its investment objectives".
The Cerulli report finds that while financial regulators have uncovered multiple examples of false advertising, few managers across the region have been fined, instead they are simply asked to amend ESG-related funds or website disclosures.
The calls for more robust retribution for greenwashing is pertinent given the huge inflows into ESG products.
This week IAM analyses research from Investment Metrics which shows fund managers are using their ESG credentials to attract asset under management.
Scott Treacy, research consultant at Investment Metrics, tells us: "Some active asset management firms were able to thrive in a difficult capital market environment… The demand from institutional investors to incorporate ESG analysis will only escalate, and those firms that are able to demonstrate their agility will obtain more institutional plan assets."
But the Investments Metrics research notes that the biggest winners of assets last year were those that had invested heavily – and convincingly – in ESG research and analysis including Schroders and RBC Global Asset Management.
This suggests investors are becoming wise to clever marketing and are favouring managers with genuine ESG integrity. And as greater regulation such as the EU’s Sustainable Finance Disclosure Requirements gain traction, the opportunities for greenwashing will diminish.
This is critical since every pound invested in an ineffective ESG fund only serves to undermine the objective of sustainable finance which is to generate returns from investing in a fair and sustainable planet for all.
Gill Wadsworth, Editor
|
