ESG/BlackRock: greenwash should no longer wash in investment

It may be the beginning of the end for asset managers who sell old funds in new green bottles. This week, a new EU regulation requires European fund groups to start backing up their claims of investing sustainably. The world’s largest, BlackRock, wrote to European clients on Wednesday promising to increase the proportion of investments that meet the EU guidelines.

Good intentions are yielding good inflows. Sustainable investment is becoming a sustainable business. But for the moment it lacks public credibility.

The EU plans to clamp down on “greenwashing” — marketing claims with little environmental substance. So it should. Investment companies will presumably charge a premium for funds trading under the shingle of ESG (environmental, social and governance standards).

The EU will allow self-monitoring by investment groups this year. Next year, it will require funds to meet its own rules, which will be tougher for many.

BlackRock, which has shifted its ESG stance from mysterious assenter to enthusiastic proponent, will raise the proportion of its funds committed to sustainable investing. Last year 62 per cent of its fund launches met EU guidelines on ESG principles. This year that proportion (in Europe) will be 70 per cent. But only 17 per cent of outstanding assets under management covered by the new requirement ($410bn of $2.5tn) met the target last year. BlackRock still has plenty of work to do.

The world’s biggest asset manager wants to scoop up as much ESG inflows as possible. These have become a torrent. In the three years to end-2020, money coming in has grown at a quarterly compound rate of 18 per cent in Europe, according to Morningstar. The rate of increase is even faster in the US, though from a smaller base. More than 82 per cent of sustainable fund assets are Europe-based according to Morningstar.

Bogus claims abound in the world of ESG. Revealingly, the largest weighted constituents of MSCI’s World ESG Leaders are very similar to those of its regular world equities index. It is time for the authorities to police the green claims of fund managers as tightly as their projections on investment returns.

The Lex team is interested in hearing more from readers. Please tell us what you think of green funds in the comments section below.