Representing the practice of reporting an organisation as more sustainable, green, low carbon, or planet-friendly than it actually is, greenwashing is the creation of a false impression or providing incorrect and misleading information about a product or service.
In a recent interview with Nick Underdown, Head of Communications and Campaigns at OpenSeas, Underdown commented: “There are multiple different types of greenwashing and, while there is no formal typology for establishing different categories, various attempts have been made, such as the ‘Seven Sins’ of greenwashing, which include: hidden trade-offs; worshipping false labels; vagueness; lack of proof; irrelevance; lesser of two evils; and outright fibbing.”
To read the interview with Nick Underdown and Ted Pardee, click here.
What is increasing the spotlight on greenwashing activities in asset management?
With the rise in climate-focused investors and consumer protection, so does the pressures to identify and tackle greenwashing.
“Investors with a soaring appetite for ESG-focused investments are looking to ascertain whether their portfolio managers are investing responsibly. This is increasing the pressure on asset management (AM) firms to ensure greater transparency, consistency, and disclosure requirements,” commented Evaluserve.
Additionally, ESG is likely to rise in value to US$41tn by the end of 2022, offering significant value to AM firms that offer sustainable funds. However, the desire to capitalise on this trend is resulting ni negative behaviour with some firms falsely marketing products as sustainable or overstating their positive effects on the environment.
“To curb this growing malpractice, regulators are looking more closely into entities that misrepresent their ESG data, both deliberately or accidentally. Not only regulators, but also consumers, and environmental groups are calling this out and challenging greenwashing via regulatory complaints, lawsuits, and other actions,” added Evaluserve.
The challenges of operationalising ESG strategies
According to a survey conducted by the Independent Investment Management Initiative, 88% of AM firms reported that ‘the fund management industry has a problem with greenwashing’. Many believe that this is due to the limited availability of consistent climate performance data.
Other challenges faced by the industry include:
- Conflicting and inconsistent regulatory guidelines and standards
- Changing regulatory frameworks limiting the ability to operationalise ESG norms
Despite best efforts to fulfil climate pledges and enhance sustainability efforts, organisations can still be liable for greenwashing activities at the firm, fund or product level even if there is no deliberate misconduct.
“Many organisations outsource (whether that be products or services), and the companies they outsource from can be intentionally misleading. [...] Going forward, natural and social capital will likely be ‘expensive’, in the sense that they cannot be taken for granted,” said Ted Pardee, Chief Revenue Officer (CRO) at Premise.
Underdown added: “Supply chains are complex, and the large size of many companies means that the communication between their procurement and comms teams are likely to be imperfect. It will be tempting for some companies to make sweeping, company-wide claims, despite persistent problems for certain brands or products within its purview.
Some organisations place a high degree of trust in eco-certification schemes, which then create a good faith justification for making sustainability claims. The trouble is, some of these schemes are flawed and do not guarantee sustainability. Unfortunately, all businesses need to be aware of the risks of greenwashing, even within certification bodies.”
How to combat greenwashing
To address the rising concerns around greenwashing, governments and regulatory bodies are laying foundations and bolstering the rules and guidelines related to green finance, with many governments making climate change a national agenda.
“To boost ESG performance, firms need robust ratings and assessment mechanisms to process ESG data. As data is key to monitoring, identification, and quantification of risks and opportunities within potential investee companies, it should be gathered from multiple sources (websites of investee companies, annual reports, filings, etc.), accurate and unbiased, and collected in real-time. An open and direct communication channel with investee companies, influence via proxy voting, and other escalation strategies are also imperative,” commented Evaluserve.
To find out more, click here.
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