Wish or wash? Green demands in the spotlight
Nathan Parkin, chief investment officer at Ethical Partners Fund Management, agrees that funds should be more transparent about their approach to ESG investing. He says clear metrics, such as when companies include ESG measures in their executive compensation, were important to combat any potential “green wishes” from fund managers.
” Bind [ESG] compensation over an average term makes sense,” he says. “If you don’t set ambition and compensate people for it, they’re less likely to solve problems, which need to be solved in a meaningful way.”
Last year, the International Monetary Fund encouraged policymakers to make more climate data available to companies and investment funds, including better classification systems to help standardize things like labels and taxonomies between funds.
Parkin and Lucchese welcome ASIC’s recent factsheet, which makes some inroads in these areas by asking funds to clearly define the terminology they use to describe their products and to explicitly explain how sustainability considerations are taken into account in their investment strategy.
However, ASIC should provide more clarity on enforcement, says Lucchese, as clearer sanctions would likely incentivize the market to improve its ESG credentials.
“I would encourage ASIC and regulators to be really clear about enforcement and how to avoid recurrence. You need to have a strict enforcement timeline. I think that would incentivize the market to be a little more careful and cautious about their claims,” she says.
An ASIC spokesperson said the review conducted over the past 12 months found no “overt or widespread damage” from greenwashing, but noted the regulator continues to monitor the space closely.
ASIC is also working with other regulators to coordinate its actions on greenwashing, as well as with international peers, including a working group from the International Organization of Securities Commissions.
For retail investors, who lack the resources and reach of institutional funds, Lucchese advises thorough due diligence when making ESG investments, highlighting advice from bodies such as the Responsible Investment Association of Australasia, which puts ESG information available to investors.
ASIC Commissioner Sean Hughes last month urged investors to watch out for “vague or ambiguous language or exaggerated marketing claims” when trying to avoid environmentally laundered funds.
- The advice given in this article is of a general nature and is not intended to influence readers’ decisions regarding investments or financial products. They should always seek professional advice that takes their personal circumstances into account before making financial decisions.