It’s good more funds are looking to become environmentally friendly, but this could lead to greenwashing
There have been a large number of funds rebranding recently to include the phrase sustainable or ESG in their name, which raises suspicions about the potential for greenwashing – not the kind of recycling that climate crisis campaigners had in mind.
Greenwashing is used to describe the way funds may claim “green’” credentials to improve their environmental, social and governance appeal to investors.
By adding the phrase ESG to an existing funds it’s a bit like a company creating a huge advertising campaign about installing solar panels on all its warehouses, meanwhile generating millions of tons of plastic waste each year.
You still must look beyond the marketing spin to get a clearer picture.
With all these funds rebranding it is difficult to keep up with what fund strategies are trying to achieve, how the investment strategy has been altered as well as identifying the changes which have been made in line with adding an ESG or sustainable tag to the fund.
This is unlikely to help the average retail investor feel more confident investing sustainably and there will likely be a certain level of mistrust.
In some cases, ratings such as those provided by Morgan Stanley Capital International – an investment research firm that provides stock indices, portfolio risk and performance analytics, and governance tools to institutional investors and hedge funds (MSCI) – are used by some fund managers to filter companies that have a certain score.
It could be that some fund managers have looked at their fund ranges and curve fitted those which have many companies that already have high ESG ratings. Others may genuinely be looking to change the investment approach of the fund which will take some time.
Vanguard launched an actively managed sustainable fund range, which is managed by Wellington, one of the fund managers we use at The Sustainable Pension Company, but they also rebranded one of their equity funds stating that ESG was already included in the stock selection with no significant apparent changes.
Even Vanguard, a proponent of passive investing, has accepted that an active approach is required in the sustainable investing space.
It is encouraging to see fund managers moving towards a more sustainable way of investing so despite the potential for greenwashing this is a positive. There will be stricter regulations and funds will have to become more transparent.
The innovators and early adopters not playing fair may well be shot down in the short term, but this should pave the way for the majority of fund managers to include sustainable and ESG investing across their fund ranges.
Eventually, the laggards will have to accept that sustainable investing is here to stay as the future of our world becomes one of the most important aspects of daily life choices.
At The Sustainable Pension Company our portfolios are created from a clean sheet, and those fund managers we choose typically create their own investment universe of sustainable and ESG companies that meet their objectives, including net positive impact, before conducting extensive research on each company before adding them to the portfolios.