There are clearly areas that sustainable investors want to avoid, such as tobacco, weapons, breaches of labour standards and human rights, and certain types of fossil fuels such as thermal coal. Other areas are less clear. Traditional fossil fuels, for example, are a big contributor to climate change. However, they are still widely used and needed. There are those who believe that energy companies are both part of the problem and the solution. Others simply want to avoid them. The question is whether being invested in those companies and engaging them might be a better way of creating change than avoiding them all.
SINGAPORE (June 17): With the rise and rise of new sustainable funds, the question of how to avoid greenwashing becomes more prevalent. Sustainable responsible investing (SRI) labels are popping up and the European Union is in the process of defining an ecolabel. In Asia, Hong Kong’s Securities and Futures Commission announced in April new rules that require environmental, social and governance (ESG) funds to justify their green credentials by providing documents to investors that describe their investment focus, selection criteria and evaluation methodology, among others. Whereas in the past a fund would simply be labelled (socially) responsible or not, the market is now distinguishing between different ways of implementing sustainability.
Let’s start with the easy part: strategies that only apply simple exclusions and are still labelled as being sustainable should be a thing of the past. Investing sustainably is also much more difficult than buying a set of ESG scores and applying it to a portfolio. There is more to sustainable investing. Let’s talk about the new ways of sustainable investing, and the “greenwashing” dilemmas.
