ESG ‘Greenwashing’ represents a real and growing threat in the sustainable investment arena, and as such asset owners should be on their guard against it, according to Julia Dreblow of SRI Services.

‘Greenwashing’ is where asset managers (or their marketing departments) allege responsible and sustainable investment credentials for a particular fund, product or approach for which there is little in the way of evidence to support the claim. At Minerva’s ESG Educational Event in London, Julia shared her insight into this problem area, in terms of what seems to be happening, and what asset owners can do to guard against this intentionally misleading practice.

As interest in all things ESG continues to grow rapidly, from both institutional and retail investors, sections of the investment management industry appear to be struggling to keep up. Whilst there are good examples of asset managers who have clearly verifiable sustainable approaches to managing assets, there are also those out there who appear to be jumping on the bandwagon

Julia’s normal approach is to work with third parties to help them identify good or best practice in the sustainable investment space, and so the session we asked her to deliver was the exact opposite of her usual way of working! However, having spent many years assessing managers and products for positive approaches to ESG, Julia’s research approach has also provided excellent insights into the range and scale of poor practice out there.

Julia shared her five top tips for Trustees to recognise Greenwashing:

1. ESG investment strategies employed by asset managers are (rightly) diverse, so there is no single way of identifying a good one;
2. Beware of an overzealous promotional approach, which could be making exaggerated claims, be ill-informed, come from a firm that is relatively new to this space, and reflect ‘Greenwish’ – overpromising effectiveness/underestimating risks;
3. Pay close attention to the product being promoted – does it have a discernible differentiator that makes it an ESG product? What norms and standards does it take into account?;
4. How is the product being communicated to you? Are labels being misused, such as ‘ethical’ but only avoiding tobacco; and
5. Consider the fund’s strategy – is there a failure to recognise complexity or relevance of issues? Is there a failure to support collaborative stewardship activity?

Julia closed by emphasising the important role that asset
owners and Trustees have in recognizing Greenwashing and pushing back against
it. Pensions investors can move markets, if not mountains, and whilst Scheme
members may not currently be ‘banging door your down’ on all things ESG, they
won’t want potential investment risks and opportunities to be ignored.

For more information on how Minerva is helping asset stewards get to grips with their new ESG responsibilities, and stay up to date on latest developments, say hello@minerva.info