20 Apr Greenwashing

U.S. Securities and Exchange Commission Chair Gary Gensler in a recent twitter post, commented on greenwashing, and questioned whether firms were adhering to a 1940 law that requires fund names to match what they invest in (The Investment Company Act of 1940).

Greenwashing is an attempt to capitalize on the growing demand for environmentally sound products. Due to the rapid rise in the popularity of sustainable investments, more and more investment firms are jumping on the bandwagon. Gensler’s concern was that money managers might be improperly marketing their funds as ESG (Environmental, Social, Governance – non-financial factors used to measure a company’s sustainability). As a result, the SEC is working on rules that will require greater disclosure of the criteria and data used when labeling funds as ESG.

For context, Sustainability or Socially Responsible and Impact Investing (SRI) is a broad umbrella for investment selection, with origins in the 60s (in fact in practice, if not name, much earlier), whereas ESG is more specific, and data driven; the term ESG was first used in 2005.

Greenwashing is one of the reasons why I am careful about the funds I select and judicious in my use of exchange traded funds, as their ‘sustainability’ credentials can be what some old-timer SRI advocates might call ‘SRI-lite’. Of course, the overriding criteria for any investment selection is what will meet my client’s objectives, whether or not sustainability is a concern for them.

Greenwashing of course relates to more than just investments. When looking for ‘green’ products, it’s good to look for recognized designations like:

• Leaping Bunny – which means that the product has not been tested on animals.
• B Corp – means that a business is legally required to do beneficial things for the environment and the people who help create their products.
• Fairtrade – the product has been made by people who received a fair wage for their work.
• Forest Stewardship Council (FSC) – the product is made using sustainable or responsibly managed wood sources.
• Rainforest Alliance Certified – verifies that farms and forests (and any products that they produce) are economically, socially, and environmentally sustainable.

Interested in how your investments stack up when it comes to sustainability? Contact me and let’s talk about what’s important to you and whether your investments are a match.