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Investors aren’t being fooled by greenwashing fund managers
As more and more fund managers trip up on the disconnect between socially responsible marketing and the realities of their business, investors have begun to catch on.
Investors aren’t being fooled by greenwashing fund managers
As more and more fund managers trip up on the disconnect between socially responsible marketing and the realities of their business, investors have begun to catch on.
According to Stoic Venture Capital partner Geoff Waring, many investors are waking up to the excessive claims of fund managers when it comes to their ESG credentials and their failure to properly report on ESG outcomes.
Research done by the Responsible Investment Association Australasia found that of the 165 ethical investment managers surveyed, just 27 per cent applied a leading approach to responsible investment. Thirty-six per cent disclosed their full fund holdings, while the remaining 28 per cent only disclosed some holdings.
In response to this perseverance of obfuscation by fund managers of mature companies unwilling to back up their posturing around ESG with real action, Dr Waring said that investors have turned to early-stage venture capital as an alternative.
Since these capital funds typically invest in innovative companies tackling critical issues like climate change, “this makes them inherently more ESG-centric than late-stage equity fund managers”, he said.
According to him, “Early-stage venture capital funds are more involved in the future direction of their investee companies, so they are better able to assess, encourage change and report on the social outcomes of corporate practices.”
Dr Waring said that many investors now expect their fund managers to be proactive in driving better ESG outcomes from their investee companies and generating greater transparency around those outcomes. Those that fail to meet these expectations are seen as inauthentic.
Dr Waring argued that while investors want to invest huge amounts of capital in ESG, there was a lack of authentic investment options being presented by fund managers for mature companies.
“Public equity and buyout fund managers are more likely to invest in established companies. These are more likely to use mature technologies and industrial practices with poorer environmental and social outcomes. In these cases, fund managers have to change investment allocation within the company to cleaner technologies.”
In addition, “later-stage fund managers are less likely to have a board seat if their share of equity is smaller, so they also have less effectiveness when it comes to encouraging socially responsible policies by their investee companies”.
Dr Waring’s latest comments come off the back of earlier calls for better regulation for how funds report ESG investments and how ESG investing principles are integrated into business decisions.
“Stronger, more consistent guidelines and more information sharing would reduce the risk of misleading marketing claims about ESG investing,” Dr Waring said.
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