‘Greenwashing’ concerns rise over ethical investing
INVESTORS have become more sceptical about ethical investing as fund performance slips and “greenwashing” fears grow.
So-called environmental, social and governance (ESG) funds aim to make a profit from investing in companies that have strong ethical principles, and avoid controversial areas such as arms, slave labour or anything that harms the planet.
The sector performed strongly last year, but has done badly in 2022, with the MSCI World ESG Leaders Index down 26.72 per cent in the year to September 30.
More than three quarters of ESG funds underperformed their benchmarks in the first half of 2022, according to Investment Metrics.
New research shows investors are sceptical about investment fund managers operating in the sector, with 55 per cent saying they are not convinced by their ESG claims. That is double last year’s 27 per cent.
Many now question whether these funds are as ethical as they claim or are simply “greenwashing” to attract eco-minded investors.
They are also more pessimistic about performance, risk and charges, according to the research from the Association of Investment Companies (AIC).
The share of respondents who think that ESG investing is more likely to improve performance has shrunk by a third to just over one in five.
AIC chief executive Richard Stone said investors are still keen to buy investments that make a difference as well as making money.
However he warned: “ESG strategies and approaches need to be communicated clearly, factually and above all convincingly for investors to buy in.”