Invest
Does Australia need tougher ESG reporting standards?
Greenwashing by fund managers is leading to mistrust in financial products, with a raft of investors moving their money to venture capital projects instead, an industry expert has revealed.
Does Australia need tougher ESG reporting standards?
Greenwashing by fund managers is leading to mistrust in financial products, with a raft of investors moving their money to venture capital projects instead, an industry expert has revealed.
Australia has fallen behind much of the western world when it comes to environmental, social and governance (ESG) standards lacking independent reviews.
A lack of standards in Australia is leading to greenwashing, or claims by organisations of environmentally sound practices that are only partly true or have exaggerated benefits, in an attempt to mislead consumers.
With investors unlikely to find suitable ASX-listed investments to match their ideals with their investing power, Australians are turning to venture capital firms.
Stoic Venture Capital partner Geoff Waring warned that investors are becoming increasingly ESG-aware and correspondingly more distrustful of greenwashing funds that claim to comply with ESG investing principles but in reality do not.
“Many investors are concerned about the hazy reporting of fund managers when it comes to their ESG investments,” Dr Waring said.
“There is a lack of consistency and regulation in how funds report ESG investments and how ESG principles are integrated into their investment decisions and strategy and the impact this has on their returns.”
Rather than just educating participants about ESG standardised processes, they should act as a centralised platform for independent ratings and benchmarks of fund managers’ ESG compliance. Cambridge Associates calculates benchmarks for financial returns and so could do it for social impact too, he said.
It was also important given the ongoing growth in responsible investing, which represents around 37 per cent of total $3.135 billion assets under management, according to the Australian Bureau of Statistics. The responsible investment market grew 17 per cent in 2019 to $1.149 billion.
“Stronger, more consistent guidelines and more information sharing would reduce the risk of misleading marketing claims about ESG investing,” he said.
“It would also push investor ESG preferences more effectively through fund managers down to the individual investee companies where many key decisions are being made.”
Dr Waring said investors were turning to venture capital as an alternative to invest more responsibly as they wake up to the unsubstantiated claims of some public and private equity funds about ESG investing.
“Early stage venture capital is by nature socially responsible and can generate attractive returns. But it is important that investors select high-performing venture capital managers,” he concluded.
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