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Trillions of dollars have been invested into “sustainable funds” all across the world with the belief that these funds are built to have a positive impact on our planet and future generations. However, when tested for their sustainability metrics, these funds are receiving extremely low sustainability ratings. The truth is that many funds will claim they are focused on certain sustainability metrics, or they will put “ESG” in front of their fund name while falling short of regulatory minimums. In the U.S., the SEC has put certain requirements in place to ensure that sustainable funds are truly impactful, but it is extremely difficult to differentiate which funds are greenwashing and which have truly undergone screenings based on specific metrics. Simply reading a funds prospectus or methodology report to understand its sustainable approach can be misleading, in fact, about 64% of ESG funds have failed to adhere to the principles of environmental, social, and governance (ESG) investing.
The line between traditional and sustainable investing is starting to blur as companies have found a way to mislabel traditional funds. Investors must begin to demand increased transparency from their account manager, not only requiring a framework for their sustainable screening process but requesting statistics to back their methodology. If you are told that your fund uses negative exclusionary screening, this means that it may exclude companies based on how much revenue the company generates from a certain set of controversial topics. You can ask if there are still companies in the fund that generates revenue from controversial activities (ex: alcohol, fossil fuel, tobacco), and what is the exclusionary threshold used before they would remove the company from the fund? If they tell you they select companies based on their UN Sustainable Development Goals (SDG) alignment, you can ask them to provide you with information showing you which goals the portfolio aligns with and how.
If you are looking to allocate money into a fund that will really make a difference, I recommend finding a fund that is willing and able to show you proof of impact. At Physis Investment, we are dedicated to showing the underlying sustainable data behind investments! We are working to provide transparency in sustainable investing, to help eliminate greenwashing and mislabeled “sustainable funds”. With our platform, investors can show real impact data since the day of their first investment, for example: how much renewable energy a company uses, how much waste they recycle, what percentage of women are employed, etc. Physis has a range of beneficial features designed to make the life of an investor easier, we can produce an interactive link that clients can use to view the impact of their investments, generate a PDF report in seconds to help maintain compliance or screen down a universe of holdings based on certain sustainable criteria.
To learn more about how Physis can make sustainable investing easier, simply schedule a meeting here!