Environmental, social and governance investing is drawing criticism on several fronts. Investors are especially questioning the “environmental” part, experts say. Moreover, companies are facing criticisms of “greenwashing”; that is, that they are overselling their promises of sustainability.
“Box ticking around carbon emissions alone, in other words, does not work,” Anne Simpson, global head of sustainability at Franklin Templeton, told the Financial Times.
According to the Wall Street Journal, part of the problem with ESG investing lies in vague definitions, leading to increased scrutiny of the environmental part of the claims. The publication previously reported that a single company’s ESG rating can vary widely between credible credit-rating firms.
“There’s a lot of pressure on investment managers to demonstrate the value that they’re getting out of their stewardship work,” Peter Reali, managing director of responsible investment and engagement at Nuveen which oversees about $1.3 trillion, told BBN Bloomberg.
There appears to be some merit to scrutinizing ESG investing, if a recent case in Germany holds water. German asset management group DWS is accused of greenwashing by exaggerating the ESG credentials of its investment funds, the Financial Times reported. The company’s Frankfort offices were raided Wednesday, and CEO Asoka Woehrmann resigned. According to the Financial Times, the executive had claimed earlier this year that DWS’s push into ESG investment was “a true success story.”
The Wall Street Journal reported: “The continuing fallout at DWS is a warning to other asset managers to stand up or scale back green claims. More broadly, the tighter rules around what qualifies as environmentally friendly, even as social and governance criteria remain less well-defined, could mean it is time to take the ‘E’ out of ESG investing — if not retire the grouping altogether.”
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