Survey: Greenwashing 'is the biggest challenge to sustainable investment'
A survey of 650 institutional investors with more than $25.9trn in assets under management globally has found that investor-corporate engagement on environmental issues is growing - but so is frustration over greenwash.
Conducted by Schroders, the survey polled investors from 26 countries during April 2020, in a bid to track trends in ESG approaches and thematic green funds.
Some 60% of the respondents said that actively engaging companies within their portfolios on environmental issues was a priority, up from 38% at last year’s survey. Moreover, more than two-thirds (67%) said they had integrated new environmental requirements in decision-making processes.
These findings prove that there is a trend towards refusal to invest in corporates lagging behind on climate change, biodiversity and pollution at present and in the future, coupled with a tendency to prioritise engagement over divestment for legacy investments.
The survey also found that more than one-third of investors (35%) choose dedicated ‘green’ assets or are working to improve their ESG requirements because they believe this will boost returns and lower risk. Schroders believes this trend points to a decline in the false assumption that sustainability is bad for business. Its 2018 iteration of the survey saw half of the respondents raise concerns over the performance of ‘green’ funds.
Nonetheless, the survey acknowledges that institutional investors face a multitude of challenges on the shared journey for sustainable development. Difficulty managing and measuring risk – frequently due to a lack of good data and corporate and supplier transparency – was highlighted by most respondents. The biggest challenge was found to be greenwashing, cited by six in ten respondents.
“The astonishing growth of sustainable investing over the last few years has seen a vast range of new ideas and products come to market,” Schroders’ head of sustainability strategy Hannah Simons said. “With new approaches comes new jargon but definitions are not always clear.”
The publication of the survey results comes as the EU faces pressure to apply its sustainable finance taxonomy to the processes used to allocate its €750bn Covid-19 recovery package. All finance provided under the package is bound to a “do no harm” principle and at least 30% must be specifically allocated to the green economy.
The CMA is cracking down
Experts have repeatedly claimed that greenwashing has become more common in recent years and that this trend will only accelerate in the coming years, as consumer and investor demands for sustainable products outpace corporate action. A recent survey of 1,000 people by Futerra found that most want to choose more eco-friendly options, but more than two-fifths think companies make it harder to do so, despite their sustainability commitments.
The Competition and Markets Authority (CMA) announced this week that it will implement new measures to stop corporates from publishing misleading claims that overstate their positive environmental impacts – and to hold them to account if they do.
It is conducting an investigation to determine what the new measures should look like, including a large-scale survey around consumer perceptions and in-depth discussions with specific sectors to pin down definitions of key terms. Sectors where consumers appear to be most concerned about claims will be targeted first, including food and drinks, fashion, cleaning products and health and beauty products.
“We know that many businesses will be looking for ways to reduce their carbon footprint and we strongly support this, but the claims they make must not mislead consumers in the process,” the CMA’s chief executive Andrea Coscelli said.
“It’s important that people can easily choose between those who are doing the right thing for the environment and those who are not so that businesses genuinely investing in going green can be properly rewarded by their customers.”