Asset owners and managers welcome heightened regulatory scrutiny of environmental, social, and governance (ESG) initiatives in the wake of “greenwashing” concerns.
Even as firms acknowledge and take measures to quell cynicism, few show signs of being deterred by skeptics or deviating from the courses that have been set.
Increased criticism over ESG has led regulators to step up efforts to more clearly define and better regulate the ESG investment market, Cerulli Associates says in its latest white paper, Global State of ESG.
Investment funds that purport to be “green” or offer sustainability benefits without meeting any set categorization standards are rightfully being met with increasing scrutiny as the industry aims to sort out greenwashing.
The majority of US asset managers polled by Cerulli believe that the Securities and Exchange Commission should be responsible for setting standards around both public companies’ ESG disclosures (73%) and asset managers’ ESG standards and product definitions (58%). Meanwhile, 85% of European institutional investors are in favour of fining asset managers that engage in greenwashing practices and only 7% are not.
Fears of negative returns and the perception that performance may be sacrificed in the name of ESG or sustainability continue to be a major challenge to firms when it comes to marketing their strategies.
Nonetheless, managers are forging ahead with product development, sales, and marketing of ESG products, Cerulli says. In Europe, nearly half (49%) of asset managers consider ESG marketing a very important feature of their overall marketing efforts, and in the US, 58% of managers consider ESG a top product development initiative.
“Overall, Cerulli’s research reflects an industry largely unswayed by negative rhetoric surrounding the topics and concepts related to ESG investment,” says associate director David Fletcher.
“By and large, sustainability and the overarching themes of ESG investment are already ingrained in the asset management industry. The challenges firms face in implementing ESG investment initiatives are pain points that will likely be viewed in retrospect as necessary steps in the legitimization and long-term success of these goals.”