By Dafydd Rees
Over the past few weeks, there has been a profusion of stories in the UK and international business media which have seen the term greenwashing liberally applied across environmental finance.
ESG is the most important investment trend of our times. Driven by strong performance and exponential demand, the financial services industry is undergoing wholescale transformation.
My concern as a former business journalist who has spent his life seeking clarity is that this current debate is in danger of falling foul of the law of unintended consequences.
It’s true that media scrutiny and scepticism is serving to highlight the urgent need for commonly understood and observed ESG standards and definitions.
But greenwashing is an easily misunderstood label which is in danger of confusing the sustainable investing debate, undermining public trust and so ultimately frustrate our collective commitment to solving the global Climate Crisis.
What no-one who is committed to achieving a net-zero world wants is the general perception that sustainable investing is little more than a marketing exercise.
What I am witnessing is superficial gestures being made by some financial services institutions being confused with a genuine lack of agreement and consensus on the conditions required to meet net-zero emissions targets.
There is a sense that the financial and business media, and the public at large, is losing patience with the failure of politicians, business and regulators to agree global standards and a universal and specific definition of how to measure outcomes.
ESG is big business: Assets under management in sustainable funds are up 50% over the year while green bonds raised $490 billion last year.
According to data provider Morningstar, net inflows into sustainable funds in the US more than doubled last year. Bloomberg Intelligence predicts ESG assets will exceed $53 trillion by 2025.
The former Governor of the Bank of England Mark Carney, who is an adviser to Brookfield Asset Management has been criticised for describing Canada’s largest alternative asset manager’s portfolio as carbon neutral.
A recent Dutch study received wide media coverage for its finding that a third of money managers who are signatories of the UN backed Principles for Responsible Investment are failing to meet their pledge to support ESG in their investing strategy.
The Science-Based Targets Initiative launched in 2015 so that business could align with the goals of the Paris Climate Agreement has been criticised by one of its creators. It’s used by many of the world’s biggest companies as a standard for emission reductions.
Today, the EU introduces new Sustainable Finance Disclosure Requirements on ethical investing. It requires asset managers across Europe to explain how ESG risks are being monitored.
In the US, the Securities and Exchange Commission has just announced the creation of a new task force to enforce ESG disclosure requirements. It will focus on material gaps and mis-statements in financial disclosures.
The COP26 climate summit to be held in Glasgow this coming November is set to prove a seminal moment in agreeing important definitions. We urgently need a green taxonomy, which classifies types of assets and investments according to how they fit in with decarbonisation.
The IFRS is set to launch its Sustainability Standards Board to look at climate disclosures while the Net-Zero investment framework for asset allocation is being developed by the Institutional Investors Group on Climate Change.
The green agenda is the defining issue of our generation. A failure to reach consensus and a lack of collective understanding cannot undermine momentum. Transparency and accountability are critical in equal measure.