The Consequences of Greenwashing
What’s changed in ESG?
The new generation of investors are not only seeking a quality return on their investments but they also want their money to have an impact on the planet, as such, institutions are creating numerous ESG funds to match the different values their clients possess. It is estimated that there are over $35 trillion in global assets allocated to different sustainable investment vehicles, capturing approximately 36% of all assets under management. Now, the rise in ethical investing is undeniable, but are people really creating an impact with their money? The answer varies based on the investment vehicle, for example ESG funds are created to specifically address certain values, yet these funds may be no different from non-ESG funds. This concept of purposefully mislabeling a fund to directly attract a sustainably oriented audience, is known as greenwashing.
Greenwashing has become a very well-known topic among sustainable investors, and has led to a demand for proof of the impact behind their investments, however, investors may still be overstating the impact to keep your trust. This is where the SEC has stepped in, not only by proposing new disclosure regulations but by opening the first ESG misstatement case of its kind. BNY Mellon has been fined $1.5 million by the SEC for overstating the impact of their investments to attract more capital. Additionally, the recent attention to greenwashing by the SEC in the US and the impending regulations in the EU has led to Asoka Woehrmann, the CEO of Deutsche Bank Asset & Wealth Division to step down from his position shortly after being accused of greenwashing.
What institutions should expect in a world without greenwashing
These recent events are just the beginning of the end for greenwashing, but this is certainly not the end of sustainable investing. Institutions will need to honestly assess the impact of their ESG funds, and market them as such. However, an ambiguous “ESG score” will not be enough to satisfy investors, or regulators. Financial institutions have been warned of the expectation around sustainable investing, now it will be up to them to comply or deal with the consequences. It is only a matter of time before institutions will be expected to treat sustainable reporting similar to financial reporting, clear and precise, driving the need to find sustainable data as transparent as their financial data.
Similar to financial reporting, investors should view sustainability from a micro (real impact data changing daily) and macro perspective (ESG scores). Physis allows investors to access a wide range of sustainability information any day, anytime, keeping their clients and the SEC happy. It is critically important that institutional investors focus on building truly impactful portfolios, and can prove its sustainability metrics; if they do not, then these firms’ employees may be placed under greenwashing scrutiny and fines may be issued.
Find out how Physis makes sustainable investing easy. From portfolio construction to portfolio reporting, the Physis platform provides the data to keep investors and regulators happy.