Greenwashing could ignite the next mis-selling crisis, warns a manager of a responsible equity investment fund.
Jamie Jenkins, head of responsible global equities and manager of the BMO Responsible Global Equity Fund (not to be confused with Jamie Jenkins at Standard Life Aberdeen), highlights the threat ‘greenwashing’ poses to the environmental, social and governance space.
“I think we are seeing the seeds sown for the next mis-selling crisis. The regulators are well aware of this threat, and hence they are tightening terminology,” he says.
Greenwashing is the process by which a fund’s and company’s products and investments appear to be more sustainable and ethical than they actually are.
In October last year, the Financial Conduct Authority published a statement saying it would be deterring greenwashing and ensuring consumers can assess if a product is genuinely green, and that it would remain an active area of focus in its “supervisory and policy work”.
Mr Jenkins also highlights excess data as a factor undermining efficiency in the ESG sector.
“The main issue is, we are living in a world where we are seeing the production of more and more ESG data – there is an enormous volume of data being produced by companies, rating agencies and research houses, but you can’t simply take that data at face value.”
He adds that ESG terminology requires understanding from experienced ESG practitioners.
Mr Jenkins says: “In this sea of ESG data there is a lot of noise, but there are fewer important signals that are actually material to companies.”
He cites the United Nations Sustainable Development Goals as a factor that can greatly add transparency to the industry.
"The 17 goals have the merit of simple labels; people can relate to them. Zero hunger, good health, wellbeing, clean water and sanitation – they understand what many of these goals mean.’’
Mr Jenkins explains: “That is something in our 2019 ESG profile and impact report – we continue to explore how we can use the SDG framework to bring greater transparency to the fund we are running, make the fund resonate more with individual investors and financial advisers and make the fund more relevant.”
The BMO Responsible Global Equity Fund was designed to align the increasing desire to incorporate a values-based approach to investing without compromising returns. It was launched in the 1980s due to a strong interest in ethical investments. It was initially a North American fund but in 1998 it became global.
“It is entirely possible to deliver compelling or at least very interesting investment outcomes for investors while paying due attention to a whole range of ethical and sustainability concerns that increasingly matter to people,” Mr Jenkins says.
The fund’s methodology is based on three pillars: avoid, invest and improve.
Mr Jenkins says: “There are certain companies we cannot invest in, such as any fossil fuel reserve companies. This is a fossil fuel-free strategy, and it has been since quarter one 2016.”