Will 2022 mark the end of greenwashing?
Through 2021, we saw a growing appetite for sustainable investing. COP26 reinforced its importance, and we saw ESG find its way to the top of the agenda.
It’s a significant step forward. When I set up Path Financial just a few years ago, very few financial advisers were even thinking about sustainable investment at the time, let alone talking about it. We often use the term ‘crack-pot bunny hugger’ when describing how we think other IFAs saw investors that prioritised ethical values or sustainability.
But, gradually, people have become much more conscious of where their money is invested and the harm it could be doing to the planet. They’ve started seeking more sustainable finance options, wanting to move their money to where it can make the biggest difference for the planet. The industry has recognised this, and the race to provide ‘greener’ pensions has gathered pace.
Many financial institutions define and measure their sustainable investment activities against ESG (Environment, Social and Governance) indicators. However, an industry-wide standard is yet to exist, and many ESG funds are far from as ethical as the customer might be led to expect. Definitions of E, S and G are often vague, measurement is hard and “greenwash” is common.
We call it the ‘50 shades of green problem’. When nothing is in place to really define what green is, it’s easy for a private institution or fund manager to claim they’re green when really, they could be anything but. With so many different shades of green, how do investors separate the ‘green’ from the ‘greenwash’?
At Path Financial, we go beyond ESG with impact investing – choosing to invest in companies whose products and services directly contribute to innovative solutions for people and planet.
Instead of just ‘screening out’ the really negative industries, which is a strategy often vulnerable to greenwashing, we base our investment advice on a gold standard impact-only model that aligns with the UN’s 17 Sustainable Development Goals. This means we only ‘screen in’ the companies that make a real, positive difference to our world.
We launched our Climate Solutions Portfolio towards the end of last year, which goes even further. It’s the optimal choice for helping to tackle the climate crisis, with the best climate solutions tilt to a portfolio, whilst also offering the prospect of superior investment returns.
John Elkington, an authority on corporate responsibility and sustainable development, has said: “I’m worried about greenwashing. I think we should come down on it very, very hard, whether it’s with criminal intent or actively deceptive.” I’m inclined to agree.
This year, I hope we will see the greenwashing that is so rife in the sector being called out for what it is. People are starting to do a lot more research and ask far more questions before making important financial decisions such as moving their pension.
There will, I hope, be consequences for greenwashers using ESG as a marketing tactic. I would like to see progress when it comes to industry regulation, and increased scrutiny on organisations not living up to their environmental promises.
My biggest hope for 2022 is that that we start to see systemic change in the investment industry. Not just doing no harm in terms of the climate, but actively contributing to tackling the climate emergency. This must go beyond a tick box exercise. Bold commitments are needed to mitigate change, and action needs to take place now.
Post COP-26, the financial industry really needs to step up. We need transparency, credibility and responsibility – we owe it to the next generation.