In the most recent “Making An Impact” podcast episode, Claire Herbert, ESG Manager for Schroders APAC, discusses with Anastasia Petraki, Schroders’ ESG Investment Director, the topic of greenwashing, concerns around this issue, and solutions that address it.
Elaborating on why investors are concerned about greenwashing and the implications of the rise in climate and investment product disclosures in the Asia Pacific, Anastasia Petraki, ESG Investment Investor, Schroders, shared:
“First, if we are talking about greenwashing at an activity or company level, the risk is a misallocation of capital. This means that money intended for sustainable purposes goes to activities that are not really sustainable. This leaves less money for those activities that can create a more sustainable economic system. So, the economy does not progress, which harms confidence in sustainable investing.
Second, if we are talking about greenwashing at an investment product level, then the risk is mis-selling. That is, people buy products that are making promises that they can’t possibly deliver. This is a failure of consumer protection. Indirectly, it also robs sustainable activities of necessary funding.
[Climate and investment product disclosures] have a dual objective here in the Asia Pacific. The first one is to create an environment that makes it easier to channel private investments toward products and services that will make the economy sustainable faster. The second is to help prevent greenwashing.
Regulators and policymakers are making transparency the number one priority for sustainable finance because, similar to investors, they see a lack of common understanding and data as a potential barrier to further growth in the market.”
Adding on to Anastasia’s remarks on disclosures, Claire Herbert, ESG Manager, APAC at Schroders, commented:
“There is also the big question about whether these disclosures and this additional transparency help.
Environmental, Social and Governance cover a broad set of factors, and different metrics will bear different importance depending on the product type you are looking at or the investor’s priorities and preferences. It’s not easy for regulators to decide which metrics to disclose because more information is great. Still, we don’t want to overburden companies and fund managers with administrative disclosures, especially when methodologies and understanding of all of this are still in their early stages.
Even with all the new disclosures, we still see a lack of understanding and trust. Consumer research tends to indicate that retail investors either don’t engage with this information or don’t understand product disclosures and end up looking at the individual underlying holdings as a “shortcut”. So, if you hold company ‘X’ in your fund and I’ve just read an article about a controversy involving company ‘X’, then I might not think you’re sustainable.
In the same vein, many investors turn to third-party ratings as a “second opinion” or to get some external validation on stuff being reported by a company or investment product. If that rating seemingly lines up with what’s being said, then that’s all good, but if not, there is a risk that people assume there’s something wrong with the reporting rather than something wrong with the rating. And let’s not forget here that ratings are just another subjective opinion on ESG, not the be-all and end-all for deciding what is or isn’t sustainable.”
Schroders’ “Making An Impact” podcast series features our thought-leaders sharing their insights on various Environmental, Social and Governance (ESG) investment topics in easily digestible audio content.
All podcast episodes are available on the Schroders website and Spotify.
