ESG Research

Study: Can you tell the difference between greenwashing and a good ESG fund?

New research shows advisers play a pivotal role in helping clients avoid greenwashed investments, but the advisers themselves may have trouble spotting a true ESG fund. A University of California study analysed nearly 100 mutual funds and exchange-traded funds (ETFs) and found that 60 of the 94 funds that claimed ESG adjacency scored poorly on their investment choices.

There is no widely accepted terminology within ESG investing and no enforcement for anyone found greenwashing funds. Funds with ESG in their names were getting very low scores on screening tools due to dozens of investments in fossil fuel extraction companies and coal-fired utilities.

The Australian Securities and Investments Commission (ASIC) has flagged greenwashing as a possible issue that could result in regulatory repercussions. Advisers should work with clients to avoid greenwashing, by understanding what is behind a name or label. Important elements to examine include the goal of a fund, for example, is it lowering ESG risk or investing in solutions, or is it designed to have some sort of impact? Working out what are ‘transition companies’ is also useful, since they are currently not endowed with green credentials, but they are working on it.

Download the full study UCSD: Identify “Greenwashing” Funds using NLP