For many people, it is all about greenwashing. How do you view this perception?

“The difficulty with the risk of greenwashing is that there is not a common understanding of what greenwashing is and the regulatory framework has not defined it precisely. This leads to a variety of interpretations and misunderstandings.

The topic is of a certain magnitude, and I do not pretend to address it from a macro or all-encompassing perspective. Rather, I would like to share my experience and opinion when talking about greenwashing with reference to the activities of asset managers specialised in the management of alternative investment funds.

The turning point for asset managers, in the whole ESG discussion, was the entry into force on 10 March 2021 of the SFDR ( of the European Parliament and of the Council of November 27, 2019 on sustainability‐related disclosures in the financial services sector), followed by the Taxonomy regulation and the regulatory technical standards, which have imposed to asset managers specific sustainability-related disclosures.

Now, the SFDR does not aim to classify financial products that are offered to investors, according to ESG requirements or thresholds, as many people think. On the contrary, the SFDR seeks to guarantee a uniformized standard of transparency regarding ESG risks associated with financial products and the ESG “commitments” that asset managers intend to undertake by initiating and sponsoring those financial products.

Some financial products (i.e. investment funds), although compliant with SFDR, do not always have a strong ESG strategy beyond. Investments funds are advertised as being sustainable or ESG, however if analysed with a magnifying glass they appear less green than they claim to be. In many instances, this situation has been perceived and challenged as being a greenwashing practice.

The reality however is more complex and to conclude that it is all about greenwashing is a simplistic conclusion. In many cases, practices perceived by some as greenwashing are simply not intentional.

Indeed, when it comes to transparency, asset managers face enormous challenges. The first challenge is the lack of data on ESG aspects that characterises the companies, or more generally the alternative assets, invested in. There are no ESG rating agencies for non-liquid assets on which asset managers may rely. There is also a lack of harmonisation of ESG indicators or measurement methods. All of this can lead to various interpretations, sowing doubt regarding asset managers’ intentions in terms of sustainable commitment.

Nonetheless, European financial authorities are paying close attention to this issue. Just to give an example, on November 2022, the three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have published a ‘Call for Evidence’ on greenwashing, the purpose of which is to gather input from stakeholders on examples of potential greenwashing practices and feedback on what are considered to be the drivers and risks associated with greenwashing. A final report covering the major outcomes of such exercise is expected to be published next year in May.   

In view of these developments, how could asset managers avoid greenwashing practices and better embrace the challenges SFDR regulations pose?

“In my opinion, when an asset manager is contemplating the launch of a new financial product it is of a paramount importance that ESG considerations are put on the agenda from day 1. The ESG piece needs to be taken in consideration already at the early stage of conceptualization of the new financial product. The development of the investment strategy needs to go hand-in-hand with the development of the ESG strategy.

To do this, asset managers need to surround themselves with ESG regulatory experts and expertise in the field within each sector they invest in. Regulatory frameworks have become more and more technical and complex, leaving no room for improvisation.

Beyond that, asset managers should invest more in developing internal ESG screening and assessment tools, collecting data and putting in place analysis methods that may guarantee a thorough understanding of their investees companies from an ESG point of view and ensure the greatest amount of transparency.”

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