Giving Compass' Take:
- John Howell discusses a report exposing the flaws of ESG, revealing that over 70 percent of funds with ESG goals fell short of them.
- How can greenwashing be prevented and transparency be upheld in the future?
- Read about how technology can help advance transparency in ESG investing.
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The rapid and widespread adoption of ESG-focused strategy throughout the investment industry has created a strange dilemma. Having generated a $35 trillion global market, ESG advocates are in the ironic position of justifying its promise after the fact. In the wake of huge market buy-in, even the basic definition of ESG is unsettled: The rules and regulations governing ESG operations are very much a work-in-progress. Standards vary in method and aims, data is inconsistent and multiple ratings offer conflicting scores.
The red-hot rush to bring ESG products to market has been followed, predictably, by a firehose of cold-water questions.
A report by InfluenceMap, a London-based nonprofit, evaluates 593 equity funds with over $256 billion in total net assets and finds that "421 of them have a negative Portfolio Paris Alignment score, indicating the companies within their portfolios are misaligned from global climate targets." Climate-themed funds fared as badly: More than half failed to match the goals of the Paris Agreement. In sum, 55 percent of funds marketed as low-carbon, fossil-fuel-free and green energy exaggerated their environmental claims, and more than 70 percent of funds promising ESG goals fell short of their targets, concludes the report.
"As the number of ESG and climate-themed funds has exploded in recent years, so too have concerns among investors and regulators about greenwashing and transparency," Daan Van Acker, an analyst at InfluenceMap, told Bloomberg.
Read the full article about the flaws of ESG by John Howell at GreenBiz.