Greenwashing sustainable investments
FOLLOWING last week’s column on sustainable investing, I had a number of enquiries asking how you can decide if a pension or investment fund actually does what it says on the tin, ie invests in what you want, and avoids what you want.
Most of us have simply had enough of, not only the barefaced lies in business and politics, but at their ability to smile back at the camera, knowing they will probably never be accountable.
Those looking to invest in environment, social and governance (ESG) believe they are buying into investments, which serve society well and displace the above, but this isn’t always the case, and accessing the knowledge to know what you are potentially mistakenly supporting, is vital.
In all the research documents, I have read on sustainable investing, one point comes through clear as day. There is an overwhelming consensus on the requirement of the integrity of information with the vast majority keen to know:
Is it real, will it make a difference?
Some 93 per cent of people all over the world said they require more information on what a company classes as sustainable.
The current epidemic is often called ‘green washing’. Green washing is where companies fill in all the right boxes to prove they meet the ESG scores, and many organisations accept those scores as a box tick, despite the company being as green, or ESG, as a thing that just isn’t.
Its called going through the motions, ‘ya know’ the sort of thing you see in organisations where the outcome is decided and they look for the data to support that outcome.
There is an inherent desire from society at large to try and make complex decisions easy by giving them some sort of mathematical value.
Dudley Moore did it for Bo Derek. Hans Eysinck did it for IQ. Opta for footballers. That strategy has been battered home more by mind numbing, IQ dissolving, ‘reality TV’ binary judgments.
Easy scoring makes complex decisions easy. Sort of.
Well, not at all actually.
Ratings are prone to all sorts of issues and indeed there are many companies who actually pay to be rated. Sounds like an election.
We know large companies have lots of resources. They also know how to use those resources and report well, disclose more and achieve a higher ESG score, even though they may be an oil company for example.
So you have a high ESG score but damage the environment and impact sustainability. You invest in oil because that oil company has a high ESG. Aside from them not being sustainable (do those companies focus on their profit or making the world sustainable?) the potential impact on your money is phenomenal.
If the Paris agreement is to be achieved and two degree temperatures are focused on, oil prices plummet from 2023 onwards. Electric cars, and more importantly the lack of use of plastic through recycling, cut the demand.
As reported by FT Moral Money, after 2030, there would no longer be a need to find new supply. Prices would then fall to c$20 per barrel by the 2040’s.
Sustainable companies are already benefitting from that switch as investors look to hedge against such a battering and are investing in sustainably led companies.
Nasty companies, thinking they can just spray perfume on their manure, might try and greenwash society with the box ticking ESG scores, but they have already seen through that and it wont, well, wash.
Europe dominates the ESG marketplace in terms of ESG funds available (in excess of 3,000 v USA - less than 300). The USA will now follow suit, having Biden in charge (remember Trump blocked fiduciaries in pension funds choosing stocks based on their ESG credentials and Biden over turned it).
The latest EU ground breaking rules halt greenwashing.
They allow investors the ability to compare between different pensions and investments and see what they actually do for sustainability of people and the planet.
In the past, some supermarkets had horsemeat slipped into food products, but the EU transparency will block greenwashing for the good of the planet and society as a whole.
:: Peter McGahan is chief executive officer of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have question on sustainable investing, call Darren McKeever on 028 6863 2692 or email email@example.com or visit https://www.wwfp.net/