Fund managers are struggling to sell their green investment products to financial advisers as rampant greenwashing erodes trust in the environmental, social and governance (ESG) industry, fresh research has
Just one per cent of financial advisers and wealth managers said they now “completely trust” claims made by supposedly green and ESG funds, the Association of Investment Companies found, with a lack of evidence cited as the top reason for a collapse in faith among investors.
One wealth manager surveyed by the body said they would need money managers to cough up “real examples in the portfolio” before they believed the green claims made by funds.
The fresh findings underline a sizable trust gap facing ESG investment after a slew of greenwashing claims against top financial firms and growing concerns over a lack of regulation in the industry.
HSBC was the latest firm to face allegations this week as it was accused of raising cash via sustainability-linked bonds and channelling it into fossil-fuel linked projects. The firm rejected the claims and said it was playing an “important role in the nascent SLB market”.
Watchdogs are are now edging into the space and looking to clampdown on fanciful sustainability claims by fund managers.
The Financial Conduct Authority last week revealed plans to curb the unverified use of terms like ‘green’, ‘sustainable’ and ‘ESG’ as well as ramping up disclosure requirements on firms to prove unsubstantiated claims. It mimics a similar push by the advertising watchdog, who also found fault with HSBC’s public-facing claims.
Analysts at the AIC said yesterday that advisers and wealth managers were now “keenly aware of the risks of greenwashing” but still backed the need for sustainable investment opportunities.
“Despite scepticism about ESG claims, financial advisers and wealth managers remain supportive of ESG investing,” Nick Britton, head of intermediary communications at the AIC said.
The survey of around 200 financial advisers in the UK also said they were more pessimistic about the performance of ESG-oriented funds than they were this time last year, with inflation and interest rates as well as geopolitical shifts affecting investment appeal.
“In the light of this, the FCA’s decision to impose stringent rules on how funds present their sustainability claims looks timely, and it’s one we fully support,” Britton added.
Fund managers are set to boost their ESG assets to almost £30tn by 2026, according to PwC, but the industry has faced a reckoning as investors double down on fossil fuel investment in the wake of rising energy prices.