Most European institutional investors in favour of fining greenwashing asset managers

Written by Adam Cadle

04/04/2023

Fining asset management firms that engage in greenwashing has widespread support among European institutional investors, according to Cerulli research.

Eighty-five per cent of asset owners polled across seven markets favour fines for transgressors.

“Investors in the Netherlands and France are the most adamant that fines should be imposed,” Justina Deveikyte, director, European institutional asset management research, said.

“All the Dutch and 97% of the French investors were in favour, while a much lower proportion of UK and Nordic respondents agreed.”

Amid numerous accusations of greenwashing, investigations by regulators in some countries, including France and Sweden, have found multiple examples of asset managers’ environmental, social, and governance (ESG) claims not being consistent with their underlying investment strategy. Yet, few managers across the region have been fined. Instead, most regulators have merely asked managers to alter ESG-related funds or website disclosures, according to Cerulli.

However, the implementation of the Sustainable Finance Disclosure Regulation (SFDR) Regulatory Technical Standards (RTS) in January has raised expectations of more fines being issued. Within the asset management industry, the two most common greenwashing practices, according to more than 50% of the European institutional investors Cerulli surveyed, are managers overstating or providing unclear messaging about the level of their commitment to sustainability and a lack of alignment between the product’s sustainability name and its investment objectives.

Some 56% of the investors located in the Netherlands, France, the Nordics, Switzerland, the UK, Italy, and Germany, are either extremely concerned or moderately concerned about greenwashing. Levels of concern vary by market. For example, in the Netherlands, 80% of respondents are either extremely or moderately concerned about greenwashing, whereas in Germany, only 40% of institutions expressed such concerns.

French, Dutch, and Italian asset managers are most concerned by potential greenwashing allegations. Managers based in Switzerland are least concerned about such allegations.

The research findings also highlighted doubts as to how effective the SFDR will be in combating greenwashing. Although 21% of the asset owners believe the SFDR will be extremely helpful in tackling the issue of greenwashing, 45% believe that the SFDR’s true impact on the practice remains to be seen. More than one-quarter (28%) believe that although it is a step in the right direction, it will not be enough to prevent greenwashing. Some 6% believe the regulation is not helpful at all.

“European institutional investors believe that other measures could be more effective in tackling greenwashing. 85% believe that clarification or expansion of regulatory requirements to improve ESG product disclosure would help to curb greenwashing,” Deveikyte said. “Another 80% believe that periodic reporting to ensure products’ ESG-related investment objectives are met could also help to identify and mitigate greenwashing.”

She added: “Overall, Cerulli does not believe there is a single tool that will prevent greenwashing. The SFDR will help to improve transparency in the industry, but investors look for different things in ESG. Some may simply want to avoid investments in areas they consider unethical, whereas others want to invest in companies that contribute to solving societal problems. This means that the ‘genuineness’ of ESG funds depends to some degree on what the investor is looking for.”

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