This is WHY Greenwashing is a Problem
Greenwashing is damaging the entire industry, says Mike Judith, international head of sales at Norwegian asset manager DNB Asset Management. A more integrated and transparent approach to sustainability needs to be adopted - also in Germany, where recent incidents have given rise to a new debate over ESG investing.
The debate about whether integrating sustainability in financial products is a niche has died down. With regulators redirecting global financial flows, expansionary fiscal policies, and changing consumer demands, it is no surprise: sustainability is the new norm.
But a major problem is that standard ESG definitions have not yet been established and EU regulatory projects such as the EU taxonomy, MiFID and the Sustainable Finance Disclosure Regulation have not yet been aligned. As a result, the analyses of sustainable research houses and asset managers sometimes differ significantly.
Another problem is the forceful marketing engine. Sustainability has now become so significant that - at least at first glance - there are hundreds of providers of green products and services. Many of the world´s asset managers, banks, stock exchanges, data providers, or rating agencies did not have a single sustainable product just a few years ago, but market themselves as pioneers today: where trillions of hard currency are invested, many are eager to quickly transform themselves from flagship capitalists to environmental angels in the public eye. ESG marketing is in full swing, leaving consumers behind in the green fog.
One topic that has received significant attention is “impact”. For example, one fund company decided to remove an online impact calculator from its website after a consumer protection agency challenged the credibility of its claims and demanded that it be removed. This has raised doubts among investors. Moreover, another major German asset manager has come under public and regulatory scrutiny for making exaggerated sustainability claims about its funds. How many cases remain undetected? I would dare to say that in the absence of unified, consistent standards and due to different criteria being applied, it would be possible to report critically on almost any investment product. The former chief investor of the largest U.S. asset manager even called ESG a “deadly distraction” from the solutions that are actually needed. That's why public skepticism is growing.
Detective work in the green zone
Why is it so hard to judge whether a company is operating sustainable? Here are three examples: A large beverage manufacturer reports low CO2 emissions - clearly: subcontractors handle the CO2-intensive logistics, which are part of its scope 3 emissions. E-commerce companies emit little CO2 themselves - but is their business model of sending products around the world sustainable? An asset management giant propagates climate protection - and at the same time co-finances deforestation, which is contradictory to say the least and calls for industry-specific climate and ESG risk assessment tools - particularly for harmful industries.