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Responsible talk not enough in 2021

What the Financial Markets Authority do if fund managers are caught greenwashing.

Tuesday, February 16th 2021, 6:00AM 6 Comments

by Daniel Smith

The FMA have made it abundantly clear that any funds claiming to take into account non-financial factors such as natural, social and human capital impacts need to back themselves up with hard evidence.

FMA director of investment management, Paul Gregory, warned providers with greenwashed funds that they “need to check their rhetoric before your investors with Facebook and Reddit accounts do it for you.

“For example, if you’ve labelled your fund ‘responsible’, what does that mean to you? Especially when other providers have also used that label, and their portfolios are quite different.

“As another example, if you claim excluding alcohol is ‘ethical’ – what are the actual ethics, the values and principles, underpinning that exclusion. Are they reflected more broadly, like in your staff and investor functions? And if they aren’t – is it truly an ethical position?”

The FMA have clearly drawn a line in the sand by asking fund managers to consider more deeply the ethical thinking behind their funds, and whether or not they have the ability to prove it.

Gregory said that the FMA expects all providers making claims that they are offering an integrated financial product to be able to convincingly prove that they can:

  • explain what they mean by terms such as “responsible”, “ethical” or “impact”
  • substantiate the claims with evidence of how it is reflected in the investment process and the portfolio resulting from it
  • give ongoing transparency to the investors about how their capital continues to be aligned to the values you as a provider claim to share with them.

This sentiment was confirmed by the regulator in FMA chief executive Rob Everett’s speech earlier in the event where he stated that, “As I’ve indicated before, we are fully behind the move to a sustainable finance system, and I applaud the great work of the Sustainable Finance Forum in that regard.”

Everett issued a harsh warning to any funds who believe they can continue to get away with greenwashing in 2021.

“I will say again, however, we will have little patience for issuers or product providers who try to rebadge their investment products as “green” or “responsible” without actually fundamentally reflecting that in the substance of the product and the rights of the investors.”

The FMA have made it clear to Good Returns that they will treat wilful deception in the space of green or impact funds, with the same degree of severity as they would any other area of regulation non-compliance.

In the guidance issued on green funds the FMA stated that “a formal feedback letter, or issuance of a public warning, stop order, direction order”, are all options for the regulator.

The section goes on to state that “If poor practices appear widespread we may publish a monitoring report to help educate the market.”

Tags: FMA green investment greenwashing Integrated financial product Paul Gregory Rob Everett

« Three lessons for advisers from FADC caseMann on a mission to diversify financial advice »

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Comments from our readers

On 16 February 2021 at 10:31 am smitty said:
Now this will be interesting. I suggest setting up a web page for anon suggestions as to what funds are holding so called illicit stocks that fly in the face of their PDS or beliefs. Shine as much sunlight on it as possible. I'm sure that the regulations had already allowed for false advertising, but nice to see it being promoted publicly now.
On 16 February 2021 at 2:54 pm Pragmatic said:
I'm really looking forward to seeing the outcome from this - as my observations suggest that many local Managers believe that their UNPRI subscription is sufficient currency to misrepresent & misinform.
On 17 February 2021 at 8:54 am Murray Weatherston said:
Will FMA engage carpark monitors at office building where anti fossil fuel managers reside to see that their employees are not driving to work in ICEVs.
And will said managers be required to file a weekly declaration that they or their staffs have not taken an aeroplane flight other than in a glider?
Insanity!
On 17 February 2021 at 11:58 am LNF said:
@Weatherston. Well put !
On 17 February 2021 at 2:44 pm w k said:
murray, we should invest in a horse fund. should perform well when the anti fossil fuel group gets on their horseback. LOL.
On 18 February 2021 at 12:54 pm MPT Heretic said:
I think Mr Gregory may need to check his rhetoric. To suggest that a fund manager can only issue products that reflect their own personal and corporate beliefs is ridiculous. Of course they can offer any number of nuanced strategies as long as they are communicated clearly. Just another example of the regulator over reaching

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