PLSA22: greenwashing fears rising in investment community
Fund managers struggling to decipher ESG regulations, annual conference of UK’s Pensions and Lifetime Savings Association told.
“Fear of greenwashing is rising” within the investment community due to the complexity and lack of clarity surrounding environmental social and governance (ESG) regulations, the global head of ESG at investment manager Fiera Real Estate has warned.
Jessica Pilz, speaking at the UK’s Pensions and Lifetime Savings Association’s annual conference, said that ESG is “complex and dynamic by nature”, which has left many pension fund managers struggling to decipher its guidelines and regulations.
Pilz highlighted that ESG regulations, namely the Sustainable Finance Disclosure Regulation (SFDR), require asset managers to report against [AG1] a percentage of sustainable investments in their portfolio. However, the regulation does not define what a sustainable investment is.
The SFDR is a disclosure regulation that aims to create transparency in relation to sustainability risks and the impact of fund managers’ investment processes.
She said: “So, what is happening is that fund managers are being forced to come up with their own interpretation of what a sustainable investment is and, of course, this can lead to greenwashing because everyone is coming up with their own interpretation.”
Hence, this lack of clarity on SFDR has meant that “the fear of greenwashing is rising” within the investment community, Pilz said.
“In terms of lenders, I have heard of instances where the fear of greenwashing accusations has actually outweighed the desire to undertake green financing.
“Fund managers too are going to be more careful when voicing their opinions and approach to ESG in the fear of greenwashing accusations,” she continued.
Pilz also highlighted that due to the lack of clarity and complexity of the SFDR, fund managers have started to misinterpret it as a “product label” rather than a “disclosures label”.
[AG1]This is exactly the wording she used, I questioned whether to change it to 'on'. But, it may make sense to you to keep it as against.
In terms of lenders, I have heard of instances where the fear of greenwashing accusations has actually outweighed the desire to undertake green financing.
Public vs private markets
In her speech, Pilz pointed out that some ESG regulations and frameworks, namely SFDR and net-zero carbon pathways, are written for the public markets, which means that they are not easily transferable within the private market sector.
“Unfortunately, although well intentioned, a lot of the ESG frameworks are not applicable across markets, across asset classes, and it has become a bit of an alphabet soup,” she said.
Pilz stated that the best way for fund managers to avoid accusations of greenwashing was to be transparent with the investment community and disclose their policies surrounding ESG.
“The biggest plan is to be transparent about how you are interpreting the regulations, be transparent with your investors, be transparent with the industry.
“Disclose how you integrate ESG, be very clear about what your definition of promoting environmental and social characteristics is, whether it is in a disclosure report or a policy that outlines how you integrate ESG,” Pilz continued.
Photo credit: Daniel Graves Photography
