Greenwashing and Greenwishing… how do you know your investments are ethical?
Credit: Good Housekeeping
Regular Insights readers won't be surprised to learn that greenwashing is on the up and up, as some shonky businesses and funds make false claims of their environmental credentials in order to increase their financial gain.
What is good to know is that Australian regulators such as the ACCC, APRA and ASIC are all now increasing their scrutiny of environmental claims to clamp down on greenwashing.
It is more of a challenge than ever for investors and advisers to both understand what a company or fund represents, and how much importance ESG matters have for them.
Climate and carbon goals, the demand for better data, better disclosure and rigorous enforcement of disclosure is going to increase and that is promising for the socially responsible investor here in Australia.
The recent change of Federal Government has shown a strong indication from the voting public that more action is required on climate change, this mirrors the demand for more sustainable investment products which has been surging for a while now.
And what about overseas…
The US Securities Exchange Commission (SEC), similar to Australia’s ASIC, has announced a number of proposals targeted at the growing trend of ‘greenwashing’. They propose an extension of the ‘Names Rule’ which governs what managed funds and ETFs can call themselves.
A fund’s name is often one of the most important pieces of information that investors use in selecting a fund. The SEC proposal will ensure if an ESG term is in the name then the fund has to hold at least 80 percent of companies that fit the profile.
With the SEC’s proposed categories being:
ESG Integration funds, which simply integrate ESG considerations into their existing process, and likely represent the bulk of strategies.
ESG funds, in which ESG factors are the main consideration when selecting what stocks to hold;
Impact funds, which are required to target a specific, environmental or governance goal and track their progress against it.
We agree it is a step in the right direction in arming consumers with more data to make informed decisions.
Check out the interactive Permutable website for another ESG tool for consumers, it’s a global ESG database rating 50,000 companies.
Next steps:
Call us for a quick chat or drop us a line if you are wanting advice on your investments and how to avoid greenwashing.
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