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Fund managers must address greenwashing

investment greenwashing

Calls have been made for investment managers to improve their responsible investing processes to eliminate greenwashing from the industry.

Following a greenwashing alert from the International Monetary Fund (IMF), an independent investment consulting firm has called for fund managers to recognise their obligations in achieving true environmental, social and governance (ESG) investment offerings.

Evergreen Consultants director Michael Ohlsson said the funds management industry has a significant role in instigating the transition to a more sustainable global economy.

“It is significant that the IMF drew attention to the need to ensure proper regulatory oversight of the funds management industry to prevent greenwashing,” Ohlsson observed.

“The report noted the pressure to be ‘greener’ introduces the temptation for funds to promote themselves as being more sustainable than they are.”

According to Ohlsson, fund managers should actively integrate two obligations into the process to ensure responsible investing is achieved.

“First, fund managers must be honest and open about their sustainability intentions,” he said.

“Second, they must follow through on those intentions in their investment processes.

“Those funds with a genuine responsible investment tilt are better positioned to make a difference because of the already active position they take on making a change, that is, avoiding harm and targeting sustainability.”

The IMF report suggested policymakers need to employ better classification systems for funds where labels are more universally used and understood before the sustainable fund sector can become an effective driver of change.

It added this improvement will lead to an enhanced summation of a fund’s investment strategy and approach to engagement and stewardship.

Ohlsson, whose firm recently launched the Evergreen Responsible Investment Grading Index, pointed out some limitations to achieving this objective.

“We see two main hurdles to reaching this overarching goal as an industry: understanding what responsible investment is and promoting transparency for the responsible investment approaches by funds managers,” he noted.

“We believe responsible investment is a journey and that a fund manager needs to be very clear about their intentions. It’s okay to be ‘ESG aware’ without being an ‘impact’ fund manager.

“Both are targeting sustainability but in different ways and it is all part of the transition to achieving sustainability targets. As policy and investor awareness evolves, so will investment funds’ sustainability efforts.”

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