From social media platforms that enable investors to exchange ideas (like Reddit) to investing platforms that allow fractional shares to be purchased with zero commission (like Robinhood), innovation is happening all around.
With investors more connected, ideas are spreading and proliferating outside traditional institutions, across generations and geographies like never before.
FTA: How has greenwashing become such a problem when it comes to assessing a company's ethical credentials?
GH: More and more investors are embracing the idea of sustainability while more and more portfolio managers believe that companies with strong sustainable attributes can outperform the market.
Unfortunately, the competition for AUM has resulted in more financial products and fund issuers falsely portraying their operations, equities and funds as sustainable.
The lack of 1) tangible metrics and 2) a consensus on the calculation of ESG scores enable different players to come up with ways to portray specific companies in a particular way that may disregard some important ESG aspects.
At iClima, we like to say that the best way to combat greenwashing is with data.
FTA: I understand you believe a consistent framework to monitor ESG factors could reign in the ability for greenwashing. Does such a thing exist - or are advisers and clients often left trying to make sense of a host of data?
GH: It can be done. We advocate for the use of very tangible metrics. In the case of ETFs, we think that each fund must state 1) their purpose, 2) the key metric of impact, and 3) what it maximises and minimises.
Our flagship fund, the iClima Global Decarbonization Transition Leaders has a clear and single focus which is to represent the companies that can enable potential avoided emissions. Our metric is annual Gigatons of Potential Avoided Emissions in CO2e. We maximise green revenue, while negatively screen for brown revenue.
FTA: Could you explain the difference between green and brown revenue? How can customers/the average investor understand which is which?
Green revenue is derived from the sale of products and services that can be deemed to be environmentally sustainable.
In other words, the solutions that allow us to live our lives – heat our homes, move from point A to point B, eat, communicate, etc – especially with EVs, renewable energy, telepresence, plant based burgers) but do so with a much lower carbon footprint or even zero emissions.
These solutions move us away from BAU, predicated on fossil fuel-based solutions. Brown revenues are the revenues associated with BAU, such as internal combustion engines, gas fired or coal fired power plants, airplanes, beef burgers, to name a few.