The best way to defend yourself against greenwashing is to rely on serious professionals, capable of recognizing truly ESG funds.
The topic is of burning relevance, without any legitimate doubt. With the new requirements under the Sustainable Finance Disclosure Regulation (SFDR) coming into effect in January 2023 in Europe, in the last quarter of 2022 alone more than 300 sustainable funds – managing €175 billion or 40% of the category total - have been downgraded to avoid accusations of greenwashing (that is, that communication technique which aims to misleadingly present one’s investments as sustainable when in fact they are not).
After this premise, a provocation. As Professor Alex Edmans of the London Business School argues, perhaps we should stop talking about ESG investments thus relegating them to a niche. It must be recognized, however, that ESG criteria are fundamental for determining the value of a company in the long-term and, therefore, should be considered by all managers and not just those of sustainable funds. We talk a lot, perhaps too much, about ESG investing, but in reality the acronym ESG will soon become pleonastic because all investments will be. Not because a regulator will impose it, but because the integration of ESG criteria cannot be ignored if you want to optimize the financial return of an investment.
To curb the phenomenon of greenwashing, the supervisory authorities are implementing increasingly stringent and complex rules, with the aim of quantifying and regulating "sustainability". Unfortunately, it’s not that simple. First, there is no universally recognized definition of sustainability. It is often difficult to measure, because it is an intangible but fundamental asset (from human capital to innovation). Of the acronym ESG (Environmental, Social, Governance) only the E of environment is - relatively - easy to quantify (think of CO2 emissions). While the very concept of "social", on the contrary, is linked to qualitative, ethical, cultural, religious and political aspects that make the attempt to reduce it to mere numbers not only subjective but also unrealistic. Not to mention the difficulty of finding data that is correct, uniform, meaningful and comparable.
The best way to defend yourself against greenwashing is to rely on serious, capable professionals - by analyzing investment policies and discussing with managers - to recognize truly ESG funds. Probably, they will also be the ones that will give the greatest satisfaction to their subscribers because the sustainable companies in which they invest are better prepared to manage risks and seize opportunities, maximizing profits - which are no longer the end - but become a means, essential to meet the needs of all stakeholders.
Original article published on Money.it Italy 2023-02-28 12:20:15. Original title: Fondi ESG, come riconoscere il greenwashing nell’offerta di strategie attuali?
