Firstly, let’s be clear on one thing: ESG action, effectiveness and value creation does not hinge on what fund managers do and don’t do. The picture is bigger than that.
Fund management is a very important indicator of course. But if those with their hands on the reigns of ESG funds, investors themselves and large publicly-listed businesses read the recent headlines about the needs for standards in measuring ESG performance, it’s not difficult to understand why some would question how firmly they nail their colours to the ESG mast, and what degree of standardisation would compel them to reinforce existing commitments to change.
In the past week, this hesitancy has accelerated as the noise level around greenwashing increased markedly after the Advertising Standards Authority announced it will issue new guidelines over environmental claims that may be misleading. That has set tongues wagging in marketing circles, but has added fuel to the fire of the ESG standards debate too.
The Financial Times reported that “poor ESG standards” were holding back the ability of funds to do good. Investment Week covered demands for ESG performance shifting downstream to smaller and mid-sized companies. Yet perhaps the most important story of the week was an important step forward towards improved standards, with the newly-merged Value Reporting Foundation, created by bringing together the International Integrated Reporting Council and the Sustainability Accounting Standards Board, announcing an international taxonomy for integrating standards into corporate reporting. You heard it here first (well, and in Pensions & Investments Magazine).
But then this Bloomberg piece on “fund managers starting to axe the ESG buzzword as greenwashing rules bite” stoked things further. It’s an inflammatory piece, but leads with asset managers “starting to drop a once-ubiquitous ESG label” from their company filings.
You can understand why they might do so, given the questions circling over evidence-based corporate reporting and the very definition of what does, and doesn’t, constitute an ESG fund. But is ESG now not a dirty word, but blemished until such time that standards can be set and crystal clarity brought around pot potentially misleading information?
I’ve said before that this level of scrutiny was coming. You can’t peg such vast amounts of money on even slightly-loose definitions for too long without rigour being applied.
For me though, the latest flame-fanning only puts the need for accurate, meaningful and material information into sharper focus. Standards will get set in time. Fund managers will get the reassurance and clarifications they need. In the meantime, companies cannot afford to sit on their hands or pull back on existing ESG goals, but instead need to be even more specific and transparent on the action they’ve taken and the progress they’ve made.
The ESG News Review is written by Steve Earl, a Partner at BOLDT.
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