The investment industry is likely to come under greater scrutiny regarding ESG in the coming months amid a significant backlash against greenwashing.
Federated Hermes chief investment officer Eoin Murray said the industry’s lack of understanding of impact versus risk hasn’t helped contain the backlash.
“It’s also increasingly clear that too many people want to portray ESG issues in a simple division between good and bad, when we all know it’s complex and often involves trade-offs,” he said. he declares.
“Perhaps also, we can finally move away from focusing on aggregate ESG scores, for example, rather than doing the hard work to establish meaningful granular data around key material issues.”
A recent study by SEC Newgate Australia found that 42% of Australians do not trust Australian companies’ claims about their ESG performance.
When it comes to greenwashing, the ESG efforts of some companies have been seen as a superficial signal of virtue emphasizing style over substance.
Earlier this month, ASIC released a factsheet to help pension funds and managed funds avoid greenwashing when offering or promoting sustainability-related products.
The business regulator has identified a number of areas for improvement, including the need for issuers to use clearer labels in their information and promotions and to provide a clearer explanation of how sustainability considerations are taken into account in their investment strategy.
Murray suggested it’s time to recognize that the gap between climate science and investment needs to be bridged.
“Ultimately, this short-term pain will shape our industry for the better, and we expect more players to follow the chops,” he said.
Murray said the upcoming UN Climate Change Conference (COP27) in November will also help drive change, with significant progress expected on commitments made at COP26 last year.
“The main objectives of COP27 in Egypt are still unclear due to global political direction elsewhere, finances and the rising cost of living around the world, and the desire to secure energy needs over periods of time. variable,” he noted.
“The UN’s climate science body’s synthesis scientific report will likely be delayed until 2023 and therefore cannot provide a boost to the emergency.”
Following the Bonn Climate Change Conference (SB56) this month, which worked to implement the agreements reached at COP26, Murray said expectations around COP27 were mainly related to the how the developed world would meet its financial commitments to the developing world.
“The main takeaway from this interim session is that the global climate process has not stagnated or lost ambition despite all the geopolitical events at play,” he added.
Murray also predicted that COP27 was unlikely to include any particular measures focused on investment.
Jon Bragg is a reporter for Investor Daily from Momentum Media, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.