Greenwashing is the fund and wealth management practice of marketing or presenting an investment as having strong green or ESG attributes, when in reality it doesn’t.
With investors making a big push into ESG and demanding sustainable investments, some managers have felt the need to meet this demand with eye catching names and descriptions that suggest the product is in some way sustainable or making an impact.
The problem is the underlying investments don’t always fit the bill.
As touched on in our article outlining the problems with a lack of standardisation in ESG, greenwashing risks denting the credibility of sustainable and impact investing, just as it begins to move to the mainstream.
For example, it has been found that some funds marketing themselves as sustainable actually include some of the world’s biggest oil companies.
Regulations & Misselling
Due to the rapid growth of sustainable investing, it appears that thus far the regulator has been slow to implement measures to protect investors and only in October the FCA said it was becoming an active area of their supervisory work and outlined steps for governance committees.
This has created a void where providers are in effect self-policing their ESG and sustainability labels, and some are taking the opportunity to mislead investors.
The lack of standardisation in environmental, social and governance presents a challenge to the industry but this will be dealt with in time, however the current practises of some funds could amount to misselling.
However, the problem is centred largely around prevalent in ESG and sustainability products while impact investing sets out to create a measurable impact that provides more transparency and avoids most of the opportunity to greenwash offerings.
Greenwashing in the fund management industry will be a key topic for debate at the Impact Investing & Circular Economy Conference 2020.
Compounding issues in investment management industry, greenwashing phenomenon is not just limited to money management and is prevalent in the wider economy.
Consumer groups are piling on pressure to eradicate the practise in businesses as companies from soap brands to automotive manufacturers claim their businesses and products are greener than they are.
This could present a hurdle in reaching sustainability goals and should be addressed by the investors funding such companies which would further increase the confidence in asset management and dispel scepticism over greenwashing.