When we conduct our annual adviser temperature check, one theme becomes apparent year after year: advisers, and their clients, want more ESG.
In fact, last year, more than half of the advisers we surveyed told us they planned to lift their ESG allocation. A further quarter planned to keep their current level, while no one said they planned to decrease the amount of money they invested in sustainable funds.
Funds are also jumping on the ESG bandwagon in an enormous way, often with product offerings that aim to meet the appetites of both advisers and their end clients. The Australian Securities and Investments Commission’s (ASIC’s) deputy chair, Karen Chester, said investments with sustainable labelling doubled between 2019 and 2021 in our region.
However, the phenomenon of ‘greenwashing’ – funds intentionally or accidentally misleading investors about their sustainability attributes – is also becoming a bigger concern.
ASIC states that “greenwashing distorts relevant information that a current or prospective investor might require in order to make informed investment decisions”.
Clearly, this is a fraught area for advisers, who want to make sure they invest their clients’ money in funds that meet their criteria and aren’t exaggerating their commitment to sustainability.
The threat of greenwashing
Greenwashing has been on the corporate watchdog’s radar for some time. And recently, we saw ASIC begin civil proceedings against Mercer Superannuation. The regulator has alleged the fund “made misleading statements about the sustainable nature” of some of its investment choices.
Earlier, ASIC released an information sheet in which it called on product issuers to beware of ambiguous or misleading claims and poor explanations of ESG strategies and benchmarks.
Some of the regulator’s questions to product issuers included:
-Is the product true to label?
-Has the product used vague terminology? For example, ‘socially responsible’ can have multiple meanings and definitions.
-Are headline claims potentially misleading?
-How are sustainability factors integrated into investment decisions?
-How are sustainability metrics measured and achieved?
Since the release of that document, Adviser Ratings has become aware of more funds that have been issued warnings and asked questions about sustainability claims on their websites.
With the topic of greenwashing now making headlines, advisers may start to face further questions from their clients about how funds meet and measure their sustainability targets – or even what they mean when they call themselves sustainable. As ASIC points out, the word means many different things. Being prepared with clear explanations of the screening processes funds use and how precisely they meet ESG principles will help.
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