The end of greenwashing?

Individuals worldwide have become accustomed to signs advising them to wash their hands frequently to limit the transmission of Covid-19.

Now it is the turn of asset managers and owners to ‘wash their hands’ of greenwashing since the Sustainable Finance Disclosure Regulation (SFDR) rules came into effect last week. SFDR essentially asks firms to be fully transparent regarding the sustainability risks in their investment processes and the disclosure of sustainability features of their financial products.

UK asset managers or anyone else who distributes financial products into the EU will have to comply. The EU, to its credit, has been a driving force on sustainable finance and has now put pressure on other jurisdictions to act.

Greenwashing has become an increasing problem within the investment sphere but SFDR is seen as its demise. Often many of the funds that use the ‘ESG’ label will be invested in some of the world’s largest carbon emitters – although active share holder engagement can drive systematic change.

One of the problems of the sustainable investing landscape is in the muddying of its definition across managers and investors of what constitutes “impact investing” or “ESG alignment”. There needs to be a re-defining of such terms to fully outline what constitutes positive impact. The new EU Taxonomy, which arrives on the 1st of January 2022, will hopefully help with this.

It’s clear we have reached a mid-point in the global transition to ESG integration but those who come out the other side in good health will have followed the guidance.