September 5, 2022

Monday Morning Memo: Greenwashing or too Green? — The Global Asset Management Industry is Under Pressure

by Detlef Glow.

The implementation of ESG criteria has put asset managers around the globe under pressure. On one hand, the industry is facing greenwashing allegations from regulators and market observers for not be strict enough with the implementation of ESG-criteria into their portfolio management processes. On the other hand, some states in the US have banned asset managers that have implement environmental, social, and governance (ESG) criteria (especially the exclusion of fossil fuel, gas, and fracking) in their portfolio management processes from managing pensions or other state-related assets.

All this is happening while stakeholders from the asset management industry, governments, regulatory bodies, and NGOs are preparing their statements and presentations for the discussions at COP 27, which will be held in November 2022 in Egypt. Politicians and regulators in Europe are finalizing the regulatory framework for the financial industry around the EU Action Plan to Finance Sustainable Growth, which is seen as a lighthouse project and should set new standards for consumer protection from greenwashing.

What impact will this environment have on the future growth of sustainable investing?

One answer to this question could be none, as it doesn’t look like the ban from managing the pensions or other funds from some states in the US is shocking the respective asset managers. In addition, it is clear US regulators are working further on their regulatory framework for sustainable investments.

On the other hand, one could also say this may have a big negative impact on the future growth of sustainable investments in the US. Such a move may lead to the point that professional and retail investors may also no longer consider sustainable products for their portfolios as they follow the example of their government.

From my point of view, the impact of these bans for the US fund industry will be somewhat in between both of the statements above, as the bans may cause some short-term friction on the flows in sustainable investments but should not impact the long-term growth trend of the US investment industry. I don’t see an impact from the bans in the US for other regions, especially not in Europe, as the realization of the EU Action Plan is under full steam, especially when it comes to the prevention of greenwashing, and will continue as scheduled.

The views expressed are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.

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