Investors pulled out of funds formerly designated as sustainable after European officials cracked down on so-called greenwashing.
Citing the Global Sustainable Investment Alliance, the Financial Times recently reported that sustainable funds compromised 49 percent of professionally managed assets in Europe in early 2018 compared with 53 percent in 2016.
Interest in companies that ranked high in following environmental, social and governance, or ESG, principles spiked in that period, the British financial newspaper reported.
That’s led some asset managers license to overstate their devotion to ESG, a practice called greenwashing. As a result, other fund managers expected stricter definitions of ESG criteria, leading a pullout from funds that were expected to be revealed as less sustainable than their marketers initially suggested.
French officials, for example, introduced energy legislation in 2016 that requires companies to report how they are addressing risks associated with climate and how investment managers are integrating ESG investment policies into their businesses.
Simon Howard, who runs the Alliance’s office in Britain, said the shift was good news because it showed that ESG funds were being run properly. A downgrade in total investments was of “secondary importance,” he said.
In the United States, Alliance Research Director Meg Voorhes said younger investors would eventually compensate for the drop-off. “The millennial generation is even more interested in sustainable investing and they are just starting to acquire wealth and direct investments,” Voorhes said.
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