Impact investing ‘more vulnerable’ to greenwashing

Impact investing ‘more vulnerable’ to greenwashing
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Impact investing is “more vulnerable” to greenwashing, despite carrying an intention to generate measurable impact, according to research from Rathbones. 

“In our view, it’s probably more susceptible [to greenwashing] and we would go as far as saying it’s more vulnerable than some of the other types of investing,” says Sophie Lawrence, senior ethical, sustainable and impact researcher at Rathbone Greenbank Investments.

Greenbank is the sustainable investment brand with Rathbones Investment Management. 

“I think it’s partly because there’s no consistent definition or approach in terms of measuring impact outcomes, either quantitatively or qualitatively. And impact data can be inconsistent and quite difficult to collect as an investor.

“We’ve got a situation where different countries, governments, public/private investment organisations are all using different methods and standards at the moment to gather and report on outcomes.”

Rathbone Greenbank Investments follows a definition that impact investments are made with the intention to generate positive, measurable social and environmental impact.

“There’s a number of key principles that we will look for that really guide authentic impact investing, such as things like a clear theory of change,” adds Lawrence.

“So what are you trying to do and how is the investment helping this come about? There should really be that causal link between the money that’s invested and the impact outcome. So how is your investment bringing about that positive change, and how can you tell?

“That’s where maybe our approach differs to some of the uses of that word ‘impact’ within the broader market, who might use that term to talk about the listed equity portfolios where you’re considering it to be impactful if the company is doing some good, like reducing carbon emissions, but that causal link isn’t there. So the company is going to reduce their carbon emissions whether you’re invested or not.”

On a positive note, Lawrence points to the existence of frameworks for measuring impact, citing the Impact Management Project’s ‘ABC’ framework used by Rathbone Greenbank Investments.

The Big Exchange, an impact investment platform, likewise employs a methodology that rates funds as bronze, silver or gold to show their level of impact performance.

“Between our impact methodology and our full transparency, we believe that that is the best way to address any form of greenwashing,” says Jill Jackson, CEO of The Big Exchange.

“If you let people see everything that you invest in, then it really does help meet customer expectations in particular, because I think greenwashing means different things to different people.”

Nick Britton, head of intermediary communications at the Association of Investment Companies (AIC), says the trade body’s own ESG research has found that advisers and wealth managers want claims to be supported by hard evidence.

“Our research also showed that impact investing had considerable appeal to both advisers and private investors. A large part of that is based on the fact that it aims for positive environmental and social impacts that are measurable and can be clearly evidenced.”