Could sustainable investing become a victim of its own success? Harvard Business School Professor George Serafeim and others are warning that the explosion in sustainable investing could lead more companies to “greenwash”, or exaggerate their environmental, social and governance, or ESG, appeals to attract more funds.
“There are now stronger incentives for asset managers to greenwash,” Serafeim told Quartz. “ESG cannot be just a marketing tool to attract capital. Right now there is a false sense of security or satisfaction if an investor buys an ESG product that might not be what the investor thinks it is.”
Those warnings come in the wake of the US Forum for Sustainable and Responsible Investment Foundation reporting that ESG investing totaled $12 trillion (€10.57 trillion/CHF11.9 trillion) in 2016, a 38 percent increase. That’s around a quarter of the total amount of assets managed in the US.
“Money managers and institutions are utilizing ESG criteria and shareholder engagement to address a plethora of issues including climate change, diversity, human rights, weapons and political spending,” said Foundation Chief Executive Lisa Woll in a press release.
But Quartz noted that few if any independent measures exist to definitively determine whether many industries are truly pursuing ESG practices. While asset managers should perform that due diligence, investors will need more tools in the future as more and more money pours into sustainable investing, especially as more environmentally conscious younger generations start seeking returns on their wealth.
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