{"id":14131,"date":"2024-05-30T10:48:02","date_gmt":"2024-05-30T14:48:02","guid":{"rendered":"https:\/\/www.rbcwealthmanagement.com\/en-eu\/?p=14131"},"modified":"2024-05-30T10:48:04","modified_gmt":"2024-05-30T14:48:04","slug":"greenwashing-what-to-look-for-when-it-comes-to-sustainable-investing","status":"publish","type":"post","link":"https:\/\/www.rbcwealthmanagement.com\/en-eu\/insights\/greenwashing-what-to-look-for-when-it-comes-to-sustainable-investing","title":{"rendered":"Greenwashing: What to look for when it comes to sustainable investing"},"content":{"rendered":"\n

Sustainable investing<\/a> has had a rough ride in recent years. While many individuals want to make a difference to the environment and society through their investments, the risk of \u201cgreenwashing\u201d of sustainable investments has posed a major concern. Indeed, it has been difficult for many investors to know and identify what a sustainable investment really is.<\/p>\n\n\n\n

What is greenwashing?<\/strong><\/h2>\n\n\n\n

Greenwashing is the act of making false or potentially misleading statements about the sustainability or environmental credentials of a product. In the context of funds, this can manifest itself in a multitude of ways and distract from and delay credible action.<\/p>\n\n\n\n

\u201cWe often see inappropriate use of data,\u201d explains Stephen Metcalf, head of Sustainable Investing at RBC Wealth Management in the British Isles and Asia. \u201cClaims, for instance, that a fund has taken ‘x’ number of cars off the road. Whereas in reality the companies in that fund have just reduced their carbon emissions, and the fund then uses a loosely worded impact metaphor to market itself.\u201d<\/p>\n\n\n\n

Likewise, excessive use of buzzwords is typically a red flag, as is the use of imagery such as trees that have no substantial or meaningful link to the investment or fund in question.<\/p>\n\n\n\n

\u201cThere are funds that claim they use ESG integration and pass that off as a sustainability objective,\u201d explains Tom Blathwayt, director of ESG at RBC Europe. \u201cIn truth, however, ESG integration should probably be a bare minimum on top of which you can build a sustainability objective.\u201d<\/p>\n\n\n\n

The need for clarity is clear, with concerns about greenwashing very much at the forefront of investors\u2019 minds. The Association of Investment Companies\u2019 ESG Attitudes Tracker<\/em> noted that 63 percent of those surveyed in 2023 agreed with the statement <\/a> “I\u2019m not convinced by ESG statements from funds.”<\/p>\n\n\n\n

So, what is deemed a sustainable investment and how can investors trust the claims that are made?<\/p>\n\n\n\n

Introducing the Sustainability Disclosure Requirements<\/strong><\/h2>\n\n\n\n

Sustainable investing is defined as investing with the stated intention of achieving positive sustainability outcomes (i.e. with a sustainability objective). And the Financial Conduct Authority’s Sustainability Disclosure Requirements <\/a> (SDR) regime, implemented in 2024, is helping consumers navigate the market for sustainable investment products.<\/p>\n\n\n\n

Its first phase introduced the anti-greenwashing rule<\/a> for all FCA-authorised firms. The rule states that firms need to ensure their sustainability references are fair, clear and not misleading, and are proportionate to the sustainability profile of the product and services.<\/p>\n\n\n\n

\u201cWith the new rule, firms can\u2019t just highlight positive sustainability impacts,\u201d says Blathwayt. \u201cIf a statement refers to a small component of a fund or a small part of a business, this has to be clarified. Claims have to be clear and balanced. That is one of the big changes going forward.\u201d<\/p>\n\n\n\n

From 31 July 2024, the second phase of SDR applies, with the introduction of the fund labelling regime. These labels are intended to help investors understand the sustainability objectives of any given fund, and they fall into four categories*:<\/p>\n\n\n\n