Watch out for 'green-washing'

Investment advisers need to look closely at fund managers that promise "responsible" or "ethical" investment options, industry researchers warn.

Friday, June 1st 2018, 6:00AM

by Susan Edmunds

The Responsible Investment Association of Australasia (RIAA) this week launched a report examining funds' approach to responsible investing.

It found more action was being taken, with funds backing shareholder resolutions demanding company disclosure on climate risk and funds divesting from companies with poor governance or who were engage in unethical activities.

Chief executive Simon O'Connor said, across New Zealand and Australia, there had been a surge in new responsible investment products being developed and brought to market.

But he said, as with any consumer segment, when there was an increase in products available, there was a risk of "green-washing", in which providers made claims to capture market attention but did not have adequate processes in place to back it up.

Advisers could look at fund managers' policies and for evidence and disclosure of how they were implemented, he said, not just relying on appealing statements.

Chris Douglas, director of manager research ratings at Morningstar, said it was something the research house had noticed.

“All of a sudden there are a lot of fund managers who claim to be incorporating ESG into their process, but have found many to be wanting, when pushed on how they are doing this and the role it is having in their analysis and portfolio decisions.

"We are seeing more fund managers placing more emphasis on the governance via proxy voting and meeting with directors but less so on the environmental and social implications.

"In saying all this, there is a broad definition around ESG and many fund managers are still working their way through things, so I don’t see it so much of a risk at the moment. There’s been a huge disparity around how fund managers treat this space for many years. But we will be starting to put a greater spotlight on fund manager decisions and you can bet that clients will too.”

O'Connor said he had not seen evidence of funds misleading the market.

He said there was a range of funds "from deep green to light green".

There was room for that, he said, but it was important that advisers and investors understood where on the spectrum a fund sat.

RIAA offered its certification process and reports to try to help with that process, he said.

Tags: funds management Morningstar responsible investing

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