David Harrison, manager of the Rathbone Global Sustainability fund, told FTAdviser he and his team meets around 300 firms a year but fewer than half of these pass its sustainable investing tests to qualify for investment.
“There are more and more companies coming to market that are saying they're very sustainable, but we're actually finding they're not in reality,” he said.
“There are thousands of companies you can look at, but actually very few - under 50 per cent - get through that whole process. And the numbers are falling.”
Harrison said he was seeing a lot of companies which didn't walk the walk when it comes to sustainability, adding, “we’re seeing lots more greenwashing”.
Rathbones uses the United Nations’ Sustainable Development Goals as a tool to measure firms’ sustainability performance.
“We'll sit down with a management team and say, right, you've highlighted in your annual report that you might be targeting number six around clean water, can you demonstrate that process,” Harrison said.
“You'd be amazed how many have got a lovely annual report, but then when you go into the details, they cannot provide the level of financial disclosure to us that is important [to us].”
Harrison pointed to a number of reasons as to why these firms are struggling to meet Rathbones’ ESG credentials.
“I'd say 75% of the time, it's lack of knowledge,” he said, adding that global legislators have a part to play.
“It’s not helped that there’s not really a global standard of disclosure.”
Global sustainability disclosure
There has been discrepancy across the world in sustainability disclosures, most notably between the UK and EU.
The EU implemented its sustainability disclosure, known as SFDR, earlier this year. It sits alongside the EU Taxonomy Regulation and the Low Carbon Benchmarks Regulation as part of the European commission’s action plan on sustainable finance.
However, due to Brexit this has not taken effect in the UK, which is creating its own regime from scratch.
Earlier this summer, the UK government announced it had created a working group to help it create a green taxonomy.
The Green Technical Advisory Group will oversee the delivery of the green taxonomy in the UK, giving advice to the government on developing the framework, supporting investors and clamping down on greenwashing.
Experts have previously predicted that the UK government will end up implementing similar rules to the SFDR and that advisers should consider following it as good practice.
Harrison said he was hoping for the UK’s regulation to align with the EU’s.
“We’re hoping that there'll be a high degree of integration between the EU regulation and the UK regulation, but it’s complicated by Brexit and other things as well in the background.
“But it is something the sooner we get the better because pretty much every company wants it. The genuinely sustainable companies want to have that gold standard, and it is frustrating for them as well [not to have UK regulation].”
sally.hickey@ft.com
