Fining asset management firms that engage in greenwashing has widespread support among European institutional investors, according to the latest Cerulli Edge—Global Edition. According to the research, 85 per cent of asset owners polled across seven markets favor fines for transgressors.
“Investors in the Netherlands and France are the most adamant that fines should be imposed. All the Dutch and 97 per cent of the French investors were in favor, while a much lower proportion of U.K. and Nordic respondents agreed,” says Justina Deveikyte, director, European institutional asset management research.
Amid numerous accusations of greenwashing, investigations by regulators in some countries, including France and Sweden, have found multiple examples of asset managers’ ESG claims not being consistent with their underlying investment strategy. Yet, few managers across the region have been fined, the firm writes, adding that instead, most regulators have merely asked managers to alter ESG-related funds or website disclosures.
However, the implementation of the Sustainable Finance Disclosure Regulation (SFDR) Regulatory Technical Standards (RTS) in January has raised expectations of more fines being issued, says Cerulli.
Within the asset management industry, the two most common greenwashing practices, according to more than 50 per cent of the European institutional investors Cerulli surveyed, are managers overstating or providing unclear messaging about the level of their commitment to sustainability and a lack of alignment between the product’s sustainability name and its investment objectives.
Some 56 per cent of the investors located in the Netherlands, France, the Nordics, Switzerland, the UK, Italy, and Germany, are either extremely concerned or moderately concerned about greenwashing. Levels of concern vary by market. For example, in the Netherlands, 80 per cent of respondents are either extremely or moderately concerned about greenwashing, whereas in Germany, only 40 per cent of institutions expressed such concerns.
French, Dutch, and Italian asset managers are most concerned by potential greenwashing allegations. Managers based in Switzerland are least concerned about such allegations.
The research findings also highlighted doubts as to how effective the SFDR will be in combating greenwashing. Although 21 per cent of the asset owners believe the SFDR will be extremely helpful in tackling the issue of greenwashing, 45 per cent believe that the SFDR’s true impact on the practice remains to be seen. More than one-quarter (28 per cent) believe that although it is a step in the right direction, it will not be enough to prevent greenwashing. Some 6 per cent believe the regulation is not helpful at all.
“European institutional investors believe that other measures could be more effective in tackling greenwashing. 85 per cent believe that clarification or expansion of regulatory requirements to improve ESG product disclosure would help to curb greenwashing,” says Deveikyte. “Another 80 per cent believe that periodic reporting to ensure products’ ESG-related investment objectives are met could also help to identify and mitigate greenwashing.”
She adds: “Overall, Cerulli does not believe there is a single tool that will prevent greenwashing. The SFDR will help to improve transparency in the industry, but investors look for different things in ESG. Some may simply want to avoid investments in areas they consider unethical, whereas others want to invest in companies that contribute to solving societal problems. This means that the ‘genuineness’ of ESG funds depends to some degree on what the investor is looking for.”
