Greenwashing: Will regulators continue to clamp down on ‘irresponsible investing’?

Sunil Rana, CEO of analytics firm Vyzrd, argued that “we are witnessing a long overdue push by the market regulators to tame the wild west of ESG investing,” as regulators across the globe begin to take action on greenwashing.

Recently under the spotlight are companies including BNY Mellon, DWS and Goldman Sachs, with DWS chief executive Asoka Woehrmann resigning following a police raid on the firm.

Why have regulators ramped up pressure against greenwashing, and what impact could that have on the asset management industry?


Rana said that following the “mad rush” to launch ESG funds was the inevitable fallout, as companies reposition funds into a greenwashed alternative.

He credited the “loose and inconsistent regulation” within global markets and “a superficial approach to ESG integration by the investment managers”, which has been exacerbated by “inherent weaknesses in the existing ESG methodologies, frameworks and processes”.

Steve Kenny, chief distribution officer at Square Mile Investment Consulting and Research, noted that following the UK chancellor’s public statement that he wishes the UK to be the first green global financial services centre, regulators have become concerned about the damage greenwashing could do to responsible investing.

Kenny said: “There is a need to keep the public’s faith in this style of investing as a means of leading change and obtaining returns, whereas greenwashing can fuel cynicism with the public that it is just a marketing gimmick.

“The collateral damage from any greenwashing story is increase in public mistrust. Mixed views on the industry already exists, and greenwashing furthers the perception that responsible investing is just another marketing story to sell different funds.”

Ashley Hamilton Claxton, head of responsible investment at Royal London Asset Management, explained that while greenwashing has always occurred, two factors have increased regulatory attention.

“First, ESG focused funds have become highly commercial and have grown rapidly, gaining greater public disclosure,” she said.

“Second, the public and, by extension, regulators are much more acutely aware of ESG and climate issues, prompting more detailed and sophisticated questions to be asked. I see this as a natural evolution of a maturing industry.”


All analysts agreed that the ramping up of regulatory action will push asset managers to be more careful about labelling their funds, with most adding that this was a positive development. However, Kenny thought fund managers’ recent use of European regulations Article 8 & Article 9 in marketing materials was not what it was “intended for”. 

Alexandra Russo, head of ESG client portfolio management US & UK at Candriam, said increased cautiousness would promote more disclosure and transparency, and this could “slow the space in the short-term” as funds with ESG characteristics may be deterred from embracing the label.

Nevertheless, she said “as expectations from regulators become more clear and definitions evolve, this issue should resolve naturally over the medium to longer-term”.

Claxton agreed, adding that “there will inevitably be some disruption, but investors will get better funds and better transparency as a result”.

“ESG managers need to be clearer in their communications about the shortcomings of ESG,” said Yan Swiderski, co-founder of the Global Returns Project. “[Managers could] enhance their impact more directly by embedding a contribution to not-for-profit climate initiatives into the fee structure of sustainable funds. Doing so supports regenerative activities that fall beyond the reach of even the most effective ESG funds.

“Not-for-profits, for example, can sue polluters, protect rainforests and deliver systemic advocacy and policy solutions. On its own, sustainable investing cannot support these critical non-market climate solutions.”

The future of regulation?

Most analysts agreed that regulators needed do more than just crack down on greenwashing, given the vagueness of guidelines.

Rana argued “fundamental changes” are needed across ESG ratings companies, funds, investors and company level ESG disclosures.

He added that while “we should not be surprised to see more names added to the list by SEC and other regulators,” it was critical to ensure broad accountability, rather than punishing individual companies in turn.

“A critical success enabler will be the banking and financial services industry undertaking a more active role in driving ESG engagement through a combination of core in-house capabilities – people, technology and risk management, supported by external partners such as the rating agencies and experts,” he said.

Kenny also laid out core changes that he felt were required: “Firstly, there needs to be a standardisation of the reporting requirements to enable comparison of vehicles. This is not currently in place and therefore, it is impossible to accurately compare funds.

“The second part to this is that the industry (businesses like ourselves, advisers, journalists and asset managers) need to hold market participants to the required standards. It is not acceptable that we all opt out and say it is the regulators problem.

Claxton, meanwhile, argued that tighter regulation was “inevitable”, but warned that a rushed and heavy-handed approach could “stifle innovation and change”.

Russo agreed with Kenny, emphasising the need for “clear sustainability objectives and taxonomies, including transparency standards, for both corporates and the investment industry”.

She said that regulators must focus on “defining the core principles that lay the foundation on how our industry needs to operate and with what objectives”, therefore helping both asset managers and investors understand how a fund can and should be labelled.

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