ESG is becoming popular but ‘greenwashing’ is a problem

December 16 2020
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Sustainable investing is back on the radar as a result of the COVID-19 pandemic, but experts warn that better standards around ESG products are needed to mitigate “greenwashing”.

Environmental, social and/or governance (ESG) factors are now top of mind for investors, with the COVID-19 crisis impacting the way investors view social responsibility and sustainable living.

According to new study survey by CFA Institute, the global association of investment management professionals, 85 per cent of CFA Institute members now take ESG factors into account when investing, up from 73 per cent just three years ago.

Although only 19 per cent of institutional investors and 10 per cent of retail investors currently invest in products with ESG factors, 76 per cent of institutions and 69 per cent of retail investors said they have interest in ESG investing. In Australia, interest is a little lower and sits at 65 per cent.

“Incorporating sustainability in investment management has become part of our industry’s mission to serve society by improving long-term outcomes,” said Margaret Franklin, CFA, president and CEO of CFA Institute.

“This moment represents a valuable opportunity for organisations to address this challenge and help shape a future worth investing in. As the focus on sustainability in investing gathers momentum, it will eventually dictate the sustainability of investing itself.”

However, while investors are flocking to social media and the more non-traditional sources of information to learn more about sustainable investing, an overwhelming 78 per cent of the surveyed respondents believe there is a need to improve standards around ESG products to mitigate “greenwashing” and boost transparency about “green” claims.

Looking at the reasons for incorporating ESG in investment decision, Ms Franklin explained that they vary.

For asset managers, client and investor demand is one of the biggest factors (for 59 per cent of firms), as well as the need to manage investment risks (for 64 per cent of firms). Just 35 per cent consider ESG to improve financial returns, despite the outperformance of ESG indexes during the COVID crisis.

“For many years, sustainable investing could be characterised as ‘a slow-moving but unstoppable train’, but this year’s events have accelerated it.

“With the COVID-19 pandemic, the health and safety of various communities has become a larger consideration. In addition, unrest over racial inequality in the US increased focus on social responsibility,” said Lisa Carroll, CEO of CFA Societies Australia.

In addition to these findings, the report found that 90 per cent of investment professionals expect that their firm’s commitment to ESG research will increase, up from 72 per cent just two years ago, which has led to a shortage of investment professions with ESG expertise.

About the author

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

About the author

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

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