SEC issues first ‘greenwashing’ fine to an investment adviser
This case may be the first of its kind, but we all know it won’t be the last. The SEC’s greenwashing taskforce is on a mission and this will be a wake up call to fund managers. This particular case is around the claim that all stocks went through an ESG quality review as part of its investment process, which they apparently didn’t.
Overstating the ESG qualities of a fund to attract capital (ie greenwashing) is a very real problem which risks damaging not only the credibility of ESG, but its potential to actually get capital flowing in ways that will benefit society and help make the planet liveable for our children.
However, I must admit I don’t envy the regulators trying to police ESG space. It often feels like it’s going through the tricky teenage years and right now they’re having a pretty wild party. What is an ‘ESG quality review’ in the first place? Every fund will take a different approach to this process, but it’s guaranteed there will be subjectivity and maybe even smoke and mirrors. What can bring integrity back to ESG funds, (aside from telling the truth about whether or not these quality reviews are being done at all) is oversight and transparency on the process; consistency and due diligence in the method.
Regulation is coming down the pipeline soon to crack down on the freeloaders at the party.
At INSIG AI, we speak to a lot of asset managers anticipating regulation and striving for best practice. They talk about the time pressures to turn around ESG analysis, and costs and expertise overheads of doing the research they want to on stocks as limiting factors. This is why we’ve designed AI tools to take the pain out of doing due diligence on your portfolio’s public disclosures on ESG with transparency and consistency – to bring integrity to the ESG review process so that our clients aren’t looking over their shoulder for the greenwashing police.