ImpactAlpha, Apr. 27 – A sure sign that environmental, social and governance performance has arrived: governments want to regulate it.
In Europe, the Sustainable Finance Disclosure Regulation is delivering the same message as the recent ‘risk alert’ from the U.S. Securities and Exchange Commission: Investors claiming “impact” or “ESG” or “sustainability” must back up their labels with evidence.
“If you’re saying you’re using ESG criteria, tell us what, when and how,” says US-SIF’s Lisa Woll.
The generally positive reaction from impact investors contrasts with the response to the Trump administration’s efforts to stymie ESG investing (see, “Trump administration seeks to turn back the ESG tide”).
“These efforts aimed at clamping down on greenwashing and impact-washing in the investment management industry are welcome developments,” said Tideline’s Ben Thornley and BlueMark’s Christina Leijonhufvud, who work with impact investors to build impact management systems that can stand up to the scrutiny.
Sustainable Snapshot. “The Risk Alert represents a wake-up call for the investment industry to take up the challenge of developing widely accepted standardized and more precise sustainable investing definitions,” writes Henry Shilling of Sustainable Research and Analysis in his latest “Sustainable Snapshot” on ImpactAlpha.
In a paper last year, Shilling and Michael Cosack said sustainable investment products that diverge from expectations risked being tagged for greenwashing.
Their solution: adoption of standardized sustainable investing definitions, a framework for investment products classifications and a a set of disclosure practices.