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Treasury’s greenwashing initiative comes under fire

by LLB Editor
9th Jun 21 11:55 am

The Treasury has today announced the formation of an independent group tasked to crackdown on “greenwashing” in investments.

Key points:

  • New independent expert group established to advise on standards for green investment.
  • UK Green Taxonomy part of Government’s efforts to improve the environment, accelerate the transition to net zero and create green jobs.
  • The Treasury says better data will help companies, investors and consumers to make informed green choices, support investment in sustainable projects and boost efforts to tackle climate change.

 Moira O’Neill, Head of Personal Finance, interactive investor, says: “It’s very difficult for the ordinary retail investor to distinguish between truly, madly, deeply green and simply washed. That’s where the industry has a huge job to educate in simple terms, so that all investors can find a path through the jargon to the investments that fit best with their principles.

 “It seems that picking through what truly is ‘green’ is a tough ask even for the fund management industry. Earlier this month, the Investment Association called on the G7 to implement mandatory climate-related risk reporting for companies against a standardised set of principles. This is hugely important work and underlines the scale of the challenge.

 “The investment management industry hasn’t always been on the front foot on this issue. In that sense, an independent taskforce is hugely welcome – and interestingly, there is not a fund management group in sight on the Green Technical Advisory Group.

 “However, there are some steps investors can take closer to home to help sort the ‘green’ from the ‘greenwashed.’

 “A fund management group’s heritage in responsible investing is worth looking at – it can give a good indication of whether sustainable investing is in the DNA, or if it is being used as a marketing tool.

 “Some fund managers make heavy use of environmental, social and governance rating agencies when considering the ‘green’ credentials of an individual company. Transparency, here, is key, so it is important to gauge how a fund manager invests and arrives at a decision as to whether a company meets its ESG definition.”

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “The move to establish a standardised framework setting the bar for investments that can be defined as environmentally sustainable is creditable, but an imperfect outcome is inevitable for the simple fact that what constitutes as a ‘green’ investment is intrinsically subjective.

 “For example, the inclusion of companies like Shell in the FTSE4Good UK 50 index may raise an eyebrow, but some investors argue that the company boast ‘green’ credentials because of its renewable energy division as part of plans to become a net-zero emissions energy business by 2050 – and the FTSE Russell Group clearly subscribe to this school of thought. Which side of the fence the new independent expert group will sit on remains to be seen.

 “The establishment of a common framework will help weed out some of the rogue players seeking to tap into the burgeoning demand for ethical investments by sugar coating their products with the sustainable label. However, for investors wedded to investing in a way that closely aligns with their moral compass, there is no substitute for doing the legwork themselves. This means looking under the bonnet of every product purporting ESG credentials to ensure compatibility.

 “To help match ethical investors with solutions that align to their morals, interactive investor publishes a long list of more than 140 socially responsible and environmental funds, investment trusts and ETFs available on the platform, broken down into three interactive investor ACE investment styles: Avoids, Considers and Embraces, to help investors navigate the list.

 “ii also offers an ethical rated list, called ACE 40, an ethical ready-made growth portfolio as well as sustainable Quick Start Funds to help people who are less confident get started.”

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