A pivot from green euphoria to green fear in the financial sector

Greenwashing concern is both positive and negative

In the past year, fears of greenwashing accusations in the finance industry have prompted a pivot from green euphoria to green fear. It is here that greenwashing concern is both a positive and a negative driving force. On the positive side, it highlights the need to regulate this space. We can’t have fund or asset managers offering supposed green products or assets without a definition of what green is.

The downside is a reluctance to reallocate much-needed capital to green companies and assets due to fear of greenwashing or accusations thereof. Furthermore, the growing trend of “greenhushing” sees companies increasingly choose not to publicise details of their climate targets in order to avoid scrutiny.

The market is going from bullish to bearish on ESG

We are seeing many examples of reclassification of funds from Article 8 to 9 in response to the tighter transparency requirements of the Sustainable Finance Disclosure Regulation (SFDR). Investors are challenged with securing sufficient verifiable data from companies to assure Article 9 status, and those selecting funds which offer deep ESG now have to reorganise due to new requirements. The downgrading is underpinned by fear. Many PEs and investment funds are afraid of being too vocal on ESG as European regulators may probe them on greenwashing. Funds with exposure to the US are also very afraid of ending up in the crosshairs of the politically contentious debate on ESG.

Pension funds are a key industry driver

The concept and understanding of ESG are still very immature in the industry. However, pension funds are an essential driver. The ESG criteria attached to their capital basically permeates the entire industry.

If you start with the large pension funds and trickle down to private equity: the LPs, the fund of funds, the VCs, the GPs and the portfolio companies, there are ESG expectations and reporting strings throughout.

A clear path through the ESG landscape

Position Green’s private equity customers, in particular, use our ESG software as it allows funds to report to their LPs but also enables their PortCos to provide them with key ESG information. Position Green’s platform and advisory services help customers navigate the ESG jungle of voluntary, regulatory and bespoke frameworks to ensure transparency, compliance and value creation for investors and companies alike.

Learn more at Position Green.