What do the experts say?
I have reached out to several experts in the field of ESG investing asking them the following questions:
"Some investors say that sustainable investing is, in some cases, nothing more than a marketing ploy or a PR stunt. What is your take on greenwashing, where certain fund managers and investment companies promote their products as sustainable when in fact they are not? How can investors assess the ESG contribution of ESG funds?"
Now let's see their answers!
Founding Chairman of Interactive Brokers
“It is unquestionable that some companies are big polluters and some are not.
Some try to offset the pollution they cause by buying carbon credits. At a higher price for carbon credits more people will be interested in sinking carbon and creating credits.
This is all true.
Opinions differ whether global warming is a real threat or not, but people who think it is should be able to use their investment dollars and favour companies that do not pollute or pollute less than their peers in their industry.
Interactive Brokers has an IMPACT APP, where users can feed in their values. The app will rate their portfolios on how it conforms to their values and help with alternative investments.”
Managing Director, www.sustainableaquaculture.ca
“Sustainability is alive and well. But so is greenwashing. The art of differentiation will always be determined by the results, not only in terms of helping the environment, but also showing a profit. In short, to be a profitable ecological caretaker. Those who use it only as a marketing ploy or a PR stunt should rightfully fail. Sustainable business 5.0 demands the 3 pillars: leadership (defined as doing what is right even if no one’s watching); partnership (defined as a “both win” collaboration); and stewardship (defined as having a caretaker mentality).”
VIKTOR E. SZABO
Investment Director, EMD, Aberdeen Standard Investments
"Those who think that sustainable investing is merely a PR exercise fail to notice the radical shift in the thinking of asset owners, regulators and investors. The climate change in particular presents us with a burning problem we don't have many decades to sort out, and the finance industry has rightly embraced this pressure. While there is different degree of buy-in and inevitably there will be instances of greenwashing from both issuers and asset managers, ESG also brings a higher degree of reporting and transparency, which will hopefully reduce the opportunity for gaming this trend.
The UN's net zero emission by 2050 target in itself requires around $1-2 trillion of investment a year; without responsible investors these goals are clearly out of reach."
"Greenwashing is more common, than one would think, and it’ll stay here until really comprehensive, but still integrated standards for ESG will be widely accepted. There is a big push from some parts of the demographics and regulators to make activites much more sustainable, and there are some results as well. But still we’re very far from the ideal outcome, and many big companies still pollute the environment, without real consequences, while many fund managers don’t really care.
Just one example: while many oil, mining and inustrial companies have some targets on scope 1 and 2 GHG emissions, they rarely do on scope 3 emissions, because for the latter, they’d need to make real changes in the core of their activites and organization. To make it worse, they use their targets and some minor results throught their PR activites, trying to create better reputation. The solution is not a peer comparison apporach, but one ultimate KPI on real sustainability and social responsibility. Plus, regulators need real tools to enforce acceptance of this KPI. We’ll get there at some point, but the question is if it’ll be too late or not.
Until investors can get transparent and reliable data, they need to pay attention on ESG tilt factor, in other words, they should consider buying not only best-in-class stocks but also the ones who show huge improvement in valid ESG KPIs."
Independent Strategic Advisor to Impact Investors
“Short answer to your question is that you have to wash off the grime to see the green and this is simply all part of a process.”
If you would like to know more about ESG investing, check out these articles: