Sustainable Investment ‘Held Back by Traditional Approaches’

Some sustainable investment strategies are being hampered by traditional investment approaches, according to a new report.

FIA EPTA — the European Principal Traders Association — surveyed asset managers in its ‘Redefining Value in ESG: The Myriad of Paths to the Summit’ report. It raised two primary areas of concern, including greenwashing risks caused by incomplete or deficient ESG data, and an overreliance on traditional exclusions-based investing.

The report comes as regulators are clamping down on potential greenwashing through tougher requirements on labelling and disclosures.

The Securities and Exchange Commission last month charged BNY Mellon’s Investment Adviser subsidiary over misstatements surrounding ESG policies for some of its investment strategies. In addition, German fund manager DWS was recently raided by police in relation to alleged misleading information about its ESG funds and strategies.

Of the 35 industry participants FIA EPTA polled, 65% said they embedded ESG factors into their investment processes across all funds, with a third of respondents only offering separate ESG funds.

Seven-in-10 respondents (70%) said data and technology continued to increase in importance in deciding where and how to trade, while two-thirds of respondents (67%) stated transparency was a key factor in the selection process of liquidity partners.

The report stated that a broader concept of ‘value’ was required to reflect wider outcomes from investment, not just commercial values. This should include alignments to the UN’s Sustainable Development Goals (SDGs), for example.

Piebe Teeboom, Secretary-General of FIA EPTA, said: “Let’s recognize that ESG investments and strategies can look different, and may take different paths, yet aim to reach the same goals.

“Rather than complicating the journey for asset managers by insisting there’s only one route open to them when making sustainable investments, we should adopt a more data-driven approach which allows choice and preference, as long as the summit of sustainable development is achieved.”