Phoebe Stone, Partner and Head of Sustainable Investing, and David Lane, Partner and Technical Director
Interest and growth in sustainable investments has surpassed even the most ambitious predictions. According to the Global Sustainable Investment Alliance, more than a third of all assets in the five biggest markets are invested sustainably. Some speculators anticipate half of all investment assets to be aligned to ESG (environmental, social and governance) principles by 2030.
However, this phenomenal growth brings concerns over the quality and authenticity of some of the participants in the sustainable investment market. This has led to increasing worries about “greenwashing”.
The phrase ‘greenwashing’ was coined in the 1980s by environmentalist Jay Westerveld in a critical essay inspired by the hotel industry’s effort to ‘save the towel’. In Fiji, a hotel encouraged customers to reuse towels rather than keep washing them on a daily basis, the incentive being to save water and limit damage to the environment. Meanwhile, the hotel was planning an expansion, meaning that precious local coral reefs would be damaged in the process. The practice of “greenwashing” is essentially therefore promoting a good or service as environmentally friendly whilst causing damage through other activity, the green credentials of the organisation or activity thus being only skin-deep. This unscrupulous approach is increasingly being seen across many industries, including, unfortunately, the asset management industry.
In response, our industry’s regulator, the FCA, has written a “Dear CEO” letter calling for improvements in the way that sustainable definitions are communicated to consumers and that a fund’s framework and philosophy are more explicitly laid out. Whilst this message is directed at the asset management industry, it seems clear that the FCA expects all businesses discussing sustainable investing with clients to take note and act accordingly.
The financial industry plays an integral role in allocating capital in pursuit of sustainable growth and development, and a net-zero economy. The regulator acknowledges this and wants to ensure that for investors looking to invest in line with principles of purpose, as well as profit, enough information is available for them to make informed decisions, not only at the beginning of their investment but throughout the whole time they are invested.
LGT was early to commit to sustainability, building on our company's core characteristics of long-term thinking and actions. Over the years, our commitment to sustainability has consistently grown, covering all areas of our business. Ensuring that our activities make a positive contribution is a priority, both through the sustainable allocation of capital and through our operations. We have a clearly defined approach to sustainable investing, which is outlined in our sustainable investing framework. The framework assesses the sustainability of an investment from three key perspectives: intentionality, integration and impact.
We welcome the increased attention being paid to the risks of greenwashing. We believe it is vital that investors have the right information needed to make decisions on which sustainable investment proposition that best aligns to their principles.
Companies that can demonstrate their commitment to sustainability, both through actions they are taking at a corporate level and through a well-defined and communicated sustainable investment strategy are those we see as leaders in this space. These are the businesses that are promoting sustainability within the finance sector in the right way, because it is embedded firmly within the culture of the company, and not because it is a way of marketing their services and earning a quick buck.
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