Since the world of ESG made the leap from niche to mainstream, asset managers have increasingly been striving to appeal to sustainability-conscious LPs. This has led to some firms promoting misleading claims about the sustainability of their funds, or their environmental, social and governance (ESG) credentials, in a bid to appear more attractive. This has become known simply as ‘greenwashing.’
With no standardised reporting required, nor a clear definition of what constitutes good corporate behavior, greenwashing has ripped through the alternative assets industry. In its wake is important capital that has been misdirected away from the goals and preferences of the investors who choose sustainable funds.
And even with the best of intentions, greenwashing is not always easy to avoid. Up until now, the lack of regulation has meant that there is nothing to stop a fund from self-identifying as sustainable, even if the companies it invests in make no meaningful contribution to the environment.
So how can investors gain greater awareness of how and where their money is being allocated and thus steer clear of greenwashing risk? The answer lies in data and due diligence. In my latest article published by Private Equity News, I discuss how investors and fund managers can avoid greenwashing through responsible ESG reporting. Click below to read: