McQuillen pointed out that the proliferation of ESG-labeled products in recent years, which became more difficult for investors to be able to distinguish the difference between them has led to a “siphoning” process by regulators; particularly in Europe, where the Sustainable Finance Disclosure Regulation (SFDR) now aims to filter out false claims.
This has led to stricter requirements for funds to justify their ESG credentials, with many funds having to reclassify or even remove ESG terminology from their names. The latest discussion therein lies around naming conventions and whether companies can use the word ‘sustainability’ in the fund name if they’re not meeting criteria.
“You have to have a certain percentage of that in the portfolio to be allowed to use the name ‘sustainability’,” she explains. “Between the disclosure requirements, the categorization, the naming rules, we’ve seen a lot of funds “deregister themselves”, we’ve seen funds withdrawn from the marketplace or taken off shelves, and we’ve seen funds change their names to remove sustainability. It’s now caused managers to have a good look at themselves and say, ‘Can we say we do this to the public through these disclosure requirements?’”
Minns shared a similar perspective, recognizing that while greenwashing remains a real issue, he sees a correction happening. “We’re in this phase of a little bit of correction on greenwashing and going back to basics,” he says, adding that this trend will likely lead to more transparency and honesty from companies regarding their ESG commitments.
He explains UPP’s approach to addressing greenwashing includes a focus on stewardship and clear communication of their investment policies and practices. Minns notes that UPP works to ensure their partners and investment managers are properly identifying and addressing material ESG risks and opportunities. Additionally, UPP aims to be transparent in how they are incorporating ESG considerations to meet their fiduciary duties and investment objectives for their beneficiaries.
