greenwashing

The road to hell is paved with good intentions. This applies also for well-intended regulations on environmental, social and governance. Because of the growth of ESG-focused investments in recent years, a new problem pops up: the risk of greenwashing. 

Regulatory uncertainty that the industry is contending with as a result of the complex range of interacting legal requirements, Efama, the EU’s main trade body for asset management, said. Luxembourg’s Alfi argued that “the element of intent” needs to be considered when making judgements on greenwashing.

The UK’s Financial Conduct Authority on Wednesday presented its long-awaited proposal for sustainable investment rules, going a step further than similar rules in the EU and US by suggesting three different sustainability labels for investment funds instead of two. And unlike the EU, the FCA now has proposed a 90% threshold for the most sustainable investment funds.

As fund managers and investors across the 27 countries in the European Union continue to question the union’s approach to its sustainable finance framework, Brussels has made clear it will take its time before addressing growing confusion over greenwashing. “Greenwashing remains to be defined at the EU level.”

Global asset managers appreciate the framework provided by the green investing taxonomy and SFDR, even if more needs to be done to flesh these out. There is also awareness that Asia is central if global environmental and social concerns are to be addressed. These were some of the broad themes from the “Disclosure Regulations & Their Impacts” panel at the recent Luxembourg for Finance Sustainable Finance Forum. 

Does the green investing taxonomy leave the financial service industry open to charges of greenwashing? The “Taxonomy in Practice” panel at last week’s Luxembourg for Finance (LFF) “Sustainable Finance Forum” discussed the challenges and pointed to solutions. 

To increase the range of responsible and sustainable solutions available to investors, Invesco launched the Solar Energy UCITS ETF this month. But surprisingly, even this ETF is only “light green”, under the Sustainable Finance Disclosure Regulation (SFDR).

Since the outbreak of the Covid crisis, institutional investors have been increasingly looking towards sustainable funds. However, risk management is proving a major challenge, according to a study by asset manager Schroders.

About 31% of fund assets in Europe have been classified under SFDR as article 8 or 9, with 28% as 8 and 3% as 9. Yet there are still some question marks about the effects of this regulation.

Wall Street is greenwashing finance. It has turned sustainable investment into little more than a PR stunt, and this undermines the fight against the global climate problem, according to Tariq Fancy, a former BlackRock chief investment officer.