Boards of AIFMs, Alternative Investment Fund Managers, in Luxembourg are “heavily concerned” over potential greenwashing, a survey conducted by PWC Luxembourg on behalf of the Luxembourg corporate governance institute ILA said.
The survey pointed to considerable increases in the number of reviews of ESG communications to stakeholders, conducted in order to ensure that greenwashing is avoided. The most dramatic increase was among AIFM boards, the survey said.
In 2020, a mere 8 percent reviewed ESG communications – two years later, the number shot up to 71 percent. This indicates that “AIFM boards are heavily concerned with potential greenwashing,” the survey report said.
Luxembourg is home to some 261 AIFMs, giving it a central role in Europe’s market for alternative investments. Collectively the grand duchy’s AIFMs manage around 945.6 billion euro in alternative assets – be it private equity, real estate, infrastructure, private debt, or other asset classes.
‘Strategic significance’
Boards at Ucits, Super Mancos and Alternative Investment Funds have also become more interested in reviewing their ESG communication, the study concluded, based on responses from a total of 137 firms.
“A growing number of them review their ESG communications and messaging in order to avoid situations of unintended greenwashing or mislabelling, and many have decided which ESG risks and opportunities are of strategic significance,” the survey report said.
Very few boards however have decided on the minimum percentage of investments to be aligned with the EU taxonomy for sustainable activities. A mere 7 percent of boards had resolved what the minimum percentage will be, while half stated that they will seek to be taxonomy-aligned but have not yet defined the minimum percentage. The report concluded that an increase in these figures can be expected going forward as some of the challenges facing the industry around the availability and reliability of data are solved.
Asked about the Principal Adverse Impact indicators (PAIs), 34 percent of boards will consider PAIs but have not yet finalised the details of the policy, while 7 percent will not consider PAIs. “It appears that uncertainty remains prevalent in this area, as 52 percent of respondents have not yet decided on whether they will consider PAIs or not,” the survey concluded.
AIFMs, AIFs less interested in discussing AML
This year’s edition of the survey had a specific focus on ESG as well as anti-money laundering (AML) and Know-Your-Customer (KYC). The survey showed that boards of AIFMs and AIFs have considerably less interest in discussing AML topics than their counterparts at Super Mancos and Ucits funds. Where Super Mancos discuss AML at all or nearly all of their board meeting, a typical AIFM or AIF board discusses this topic at about two thirds of all meetings.
A similar difference in governance between these types of boards also becomes apparent when considering for example compliance reports, investment manager reports and investor complaint reports.
The PWC-ILA survey report noted a slight decrease in discussions on conflicts of interest reports. Although conflicts of interest reports are discussed by 77 percent of respondents in all meetings, this is a slight decrease from the 2020 survey, when 84 percent of respondents discussed such reports in each meeting. “We would like to remind our readers that conflicts of interest should be declared at every board meeting, and likewise, we would encourage boards to review the AML/KYC report at every meeting,” the survey said.
Top 5 areas requirement additional attention
