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How To Spot Greenwashing And Find A Partner That Fits

Sustainable Finance November 27, 2020
Sustainable Finance November 27, 2020
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It’s no secret that the responsible investment (RI) offering in Canada – and globally – has grown exponentially in a short amount of time as more institutional investors recognize the opportunity, both in terms of societal improvement and long-term performance. Case in point: in a recent survey, two thirds of institutional investors said they believe environmental, societal and governance (ESG) analysis has a valid place alongside fundamental analysis, while 54% said it is a method for discovering alpha. What this also means, however, is that it is still early days when it comes to a standard practice across the board, making it challenging for asset owners to navigate the current landscape.

Specifically, greenwashing – a form of marketing spin coined in 1986 that uses green values to deceptively persuade the public – has become a relevant and rampant phenomenon recently as the demand for RI grows, and concerns have been raised across the globe, from the NGO community to investors (both institutional and retail). As a result, significant regulatory development is in the works, starting in Europe, which aims to clearly identify what an RI fund represents and how it all relates back to ESG standards. For example, in December 2019, new ESG disclosure requirements came into force for EU asset managers and ESG-labelled or sustainable investment funds – part of the European Commission’s Action Plan for Sustainable Finance. And further top-down intervention can be expected to trickle into North America, as institutional investors themselves demand greater transparency in their efforts to align their values with their investment expectations.

Still, even with directive, it’s important for institutions to delve under the hood, and ask tough questions. The ESG integration approach is particularly relevant here, since how exactly it’s accomplished has yet to be defined, and it can often transcend “RI/ESG” branded products, meaning regulation would not necessarily apply. Simply put: how ESG factors are taken into consideration is unique and proprietary to every manager since there is no standard benchmark. As providers of capital at the top of the investment chain, asset owners globally should hold investment managers accountable, beginning with a disciplined process to discern ESG techniques, and drive RI throughout the entire cycle.

READ MORE on the BMO Global Asset Management website, including:

  • How to select managers that align with your values

  • A differentiated Responsible Investing ethic

  • COVID19 presents a golden opportunity to reset

Top Ranked Bank in The Wall Street Journal Sustainability Survey. Learn more here.
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Rosa van den Beemt Vice President, Responsible Investment Analyst

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