Do fears of greenwashing outweigh the evidence?

Fears of greenwashing are on the rise amid a high-profile probe into DWS Group’s ESG investing claims and warnings from a former BlackRock executive, but how prevalent is it?
Do fears of greenwashing outweigh the evidence?

Regulatory action and improved quality of corporate data are instrumental to combat greenwashing, which, despite recent high-profile incidents, may not be as widespread as people think, according to a recent S&P report.

In August, US authorities launched a probe into DWS Group, the asset management arm of Deutsche Bank, after The Wall Street Journal reported that the firm had overstated its sustainable investing efforts.

Earlier that week, Tariq Fancy, BlackRock’s first global chief investment officer for sustainable investing between 2018 and 2019, voiced concerns over how much positive environmental impact green bonds truly had.

“There will be fear of greenwashing, unless we find a way to really classify truly sustainable funds,” Christian Bucaro, the Singapore CEO for BNP Paribas Asset Management (BNPP AM) told AsianInvestor. “Whether it is Article 8 or 9, investors should know exactly whether they are investing in something that is pure.”

In 2019, European authorities published legislation requiring entities to furnish details of their environmental, social and governance (ESG) investments. It contains ‘Article 8’ and ‘Article 9’ that require ESG investors to provide information that substantiates the ways in which their financial holdings promote sustainability.


A recent report by S&P Global Ratings indicates that investor fears around greenwashing may be overblown, as the incidence of the dubious practice is not as rampant as it is perceived to be.

Greenwashing risk was the biggest concern cited by sustainability-linked bond investors (56%), compared with other issues such as the lack of ambition and compatibility (see chart below).

Source: S&P Global Ratings

“While there are increasing concerns that these potentially misleading practices are taking place, there seems to be little evidence that they have become widespread in reality,” wrote S&P analysts in the August 23 report on the prevalence of greenwashing or “sustainability-washing” and how the market is evolving checks and balances to address these issues.

One explanation is that a lack of standardisations and poor definitions of ESG products and criteria have created uncertainty and distrust among investors, the report wrote.

Indeed, asset owners have called for better regulations and standards across Asia Pacific as they bemoaned inconsistent ESG ratings. 

“The ESG marketing and labelling, in combination with nonuniform sustainability commitments and reporting, has made it increasingly difficult for stakeholders to identify which claims are trustworthy and reliable and which are unreliable – or, in industry terms, "greenwashed”, the S&P report said.

The number of S&P companies citing “ESG” on earning calls nearly doubled to 129 in the fourth quarter of last year compared with 70 a year earlier, indicating a rise in efforts to put up the appearance of being ESG-integrated, according to the report.

Source: S&P Global Ratings


Asked if he thought the fear of greenwashing was stronger than evidence of it, Bucaro said: “It depends on the definition of greenwashing”.

“Calling it a sustainable fund but still investing in some sort of exposure to steel, coal mining or palm oil. What I can tell you is that, for us, on top of what we do in asset management, we have certain exclusions that we need to follow,” Bucaro added.

Such exclusion policies serve as a bulwark against greenwashing. At BNP, for example, both the bank and the asset management unit have an exclusion policy involving tobacco, controversial weapons and asbestos.

The firm also has a policy that prevents it from investing in companies that derive more than 10% of their revenue from mining thermal coal and/or which account for 1% or more of total global production.

That said, there has been evidence of greenwashing in the industry, Bucaro said. “Some ETFs (exchange-traded funds) have claimed to be sustainable but they were found to be investing in things that were not completely true to the cause. For the retail investor, they might not be aware and trust big, famous brands when they say it’s a sustainable investment,” he said.

Also in August, a report by London-based non-profit InfluenceMap found that 55% of 130 climate-themed funds were misaligned with the Paris Agreement. The report also found shortcomings in some of the sustainable funds managed by global asset managers such as UBS, State Street and BlackRock.

On the flipside, BNP Paribas and Invesco were given positive overall Paris Alignment scores. However, the report also noted that within each asset manager, different funds were found to have varying scores with some rated positively and others negatively.

"To meet differing investor needs and risk profiles, we offer a range of ESG strategies, including funds aligned to the Paris Agreement, and funds that meet climate objectives in other ways," a State Street spokesperson said in response to the report.

Bucaro also points out that some ratings agencies fail to take into account investor engagement considerations in their ESG rankings, which means the ratings do not reflect the engagement opportunities in certain companies.

“That's why we decided to do our proprietary rating. So we take into account a much broader picture,” he said.

It is important that engagement should not be perceived in a negative light, Simon Young, portfolio manager for UK equities at AXA Investment Management agreed.

“A company’s ESG score, whether good or bad, should be the starting point for further analysis and if need be, engagement. The fund management community has a big role to play in shaping future ESG policy. To that end, we need to ensure our analysis and methodology are fit for purpose,” he said.


The trouble is ensuring analysis and methodology are fit for purpose – but regulatory action and the availability of records on companies’ ESG initiatives can aid investors’ attempts to check instances of green- or sustainability-washing, according to the experts.

There continues to be a wide variation in the depth and types of data on companies, depending on where in Asia they are domiciled. This makes it harder to achieve consistency when establishing benchmarks to rate issuers against.

“Some elements are more qualitative. There are different standards of disclosure across the region. You have data on company A and company B, which may not have the same scope and are therefore not comparable,” Paul Milon, head of stewardship for Asia Pacific at BNPP AM told AsianInvestor during a phone interview.

To circumvent this, the ESG scoring system developed in-house by BNPP AM relies on issuer data, third-party data providers and self-developed data from direct interactions with companies to generate its ESG scoring gradient, Milon said. 

Despite these challenges, “investor scrutiny of the transparency, robustness, and credibility of sustainability commitments will continue to become bolder and broader in scope,” the S&P report wrote.

“Stakeholders want to see companies produce detailed transition action plans, backed by data and shorter-term interim targets,” it said.

“There is far more scrutiny on a company’s ESG credentials that at any time in history,” AXA IM’s Young agreed. “Given the potential brand damage from falling short on contentious issues, regulatory censure from poorly designed policies issues and the sheer flow of money into this area, companies simply cannot afford to ignore ESG considerations. Done well it can be a win for all stakeholders.”

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