How Asset Managers Can Put the Greenwashing Genie Back in the Lamp
Investors are more focused than ever on putting their money to work where they can do good. As a result, the number of ESG-focused products being marketed globally has soared. Since 2018, global ESG assets under management (AuM) have expanded from about $5 trillion to nearly $10 trillion, an annual growth rate of about 20%. However, this increase has led to inevitable questions around the veracity of ESG claims. Greenwashing has become an unwelcome industry buzzword and a new category of risk, amid rising pressure on managers to ensure their funds “do what they say on the tin”.
Greenwashing is the practice of making misleading or unsubstantiated claims about the sustainability performance of products or activities. In the asset management context, it is commonly associated with investment practices, or the descriptions attached to funds. While the majority of managers are meticulous about their choices, some tag funds as ESG but then make unsustainable investments in fossil fuel producers, companies with poor labour practices, or entities associated with issues such as pollution. In some cases, these practices have led to significant reputational damage and regulatory sanction.