A recent poll conducted by IQ-EQ found that greenwashing concerns are actually inhibiting ESG investments, as nearly two thirds of respondents said the fear of greenwashing is the number one reason holding back investment firms from focusing on sustainability in their investment strategy or marketing their sustainable credentials.
The lack of clear, universal ESG criteria continues to be a pain point as different authorities state different standards. With its two-year anniversary only just behind us, the EU’s Sustainable Finance Disclosure Regulation (SFDR) has yet to serve its full purpose, with gaps in understanding and compliance that ESMA is still struggling to fill. The regulator’s rules for the labelling of Article 8 or 9 funds to prevent greenwashing have generated a significant reaction from industry participants, who warn that overly strict guidelines could undermine the intent of the regulation. The new poll data from IQ-EQ certainly supports this thinking.
With sustainable finance regulation intensifying and concerns about greenwashing rising, a distinct shift from “tell me” to “show me” is happening, with more pressure being placed on managers to show real evidence of the claims made in their marketing materials and to demonstrate how ESG is embedded throughout the fund’s broader lifecycle. Investors are becoming much more wary and even the most impactful of impact investment firms are struggling to jump through the necessary regulatory hoops to prove their impact – especially where emerging markets and SME portfolio companies are involved that lack the necessary regulatory knowledge, internal processes and most importantly data to meet the reporting requirements.
Although SFDR has been a necessary step in the execution of the European Green Deal, aiming to transform the EU economy into a sustainable, carbon neutral economy by 2050, the implementation of the regulations will need to ensure they aren’t so onerous as to cause well-intentioned managers to pause from their sustainability journey, hence slowing the flow of capital into the right investments.
Commenting on the findings, Lyons O’Keeffe, ESG Director, said: “The poll result is concerning, but not surprising. The lack of clarity from global regulators is prompting investors to avoid ESG labelling because of potential repercussions linked to greenwashing. Our constant interactions with clients demonstrate that it’s not for the want of trying, as investors are very interested in the sector, however, they fear miscommunication will damage their reputation, or worse. This suggests that clients require additional support to engage in the right way; it’s key that the investment industry does not shy away at this critical time.”
IQ-EQ’s ESG service offering helps clients to remain compliant, manage their ESG data and meet ESG objectives by taking care of all administrative, data and reporting requirements through the full fund lifecycle.