Early last year, before the pandemic gripped the world, I predicted that investments managed with environmental, social and governance (ESG) considerations would continue to surge.
I said that sustainable, impactful and responsible investing would be an investment “mega-trend of the new decade.”
Then Covid-19 struck.
One of the ways the world changed was that the pandemic accelerated trends that were already taking place. The trend for ESG investing was one of them, with growing collective awareness and a sense of mutual responsibility coming to the fore.
A niche space for many years, ESG investing is now growing at a steady pace in every region. According to JPMorgan, the assets that follow ESG principles will soon represent 44% of all global assets under management.
More and more investors are seeking purposeful profits through ESG investments, and it’s my belief, as I wrote for Asia Times, that Asia could soon dominate the sector.
However, amid the boom, flags have been raised by some about “greenwashing.” This is when an investment may give an inaccurate impression over its green, socially responsible or corporate credentials.
So how to avoid greenwashing? There are various factors that you should consider.
These include the core values of the fund and in-fund reporting, the fund’s voting policies and track record and whether you are allowed to challenge them, whether the research is in-house or third-party, and whether they are signatories of the United Nations’ Principles of Responsible Investment (PRI).
All of this should be presented up front and be transparent to the potential investor. ESG investments must be held accountable.
Ultimately, I believe that stricter regulatory requirements and mandatory disclosures are likely to be rolled out across the world. There will also be enhanced tracking, technology and data available too.
And it’s my experience that most fund managers are extremely careful not to exaggerate their claims as mis-marketing will be exposed quickly.
Although greenwashing is a headline-grabbing theme as the ESG boom continues unabated, I would suggest that with some due diligence focusing on the various points I’ve highlighted here, investors should not shy away from this investment mega-trend – especially as those investments with robust ESG credentials are continuing to outperform the market.
Nigel Green founded deVere Group in 2002 from a single office in Hong Kong after discovering a niche market for expatriates in the financial services sector. Since then, it has grown to become one of the largest independent financial advisory organizations in the world with offices and clients across the globe.