A recent decline in the number of ESG-related investment funds reflects a shift towards compliance and away from greenwashing, suggests David Lewis, president of the BEworks Research Institute, a behavioural science consultancy.
Speaking on a new episode of GlobalData’s Thematic Intelligence podcast, Lewis said the decline is due in large part to a September 2023 ruling by the US’ Securities and Exchange Commission (SEC) that 80% of assets in funds must be related to the title.
ESG currently appears to be a declining priority for the world of finance, with both a declining number of fund names referencing it and a dwindling number of ESG mentions in company filings from within the sector.
Lewis, however, observed that greater scrutiny of how the term ‘ESG’ is used has led to a more thorough examination by companies as to whether their funds comply. He added that the renaming of funds away from ESG labels, as done by the likes of Morgan Stanley and UBS, aligns with the evolution and improvement of standards such as from the International Sustainability Standards Board (ISSB), which seek to offer clarity on sustainability reporting.
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“I think some of the investment managers have responsibly decided to rename their funds because they’ve realised under the emergent metrics, which provide more objectivity and less subjectivity, that perhaps your funds really shouldn’t have been called ESG,” he said.
Viewing the renaming of ESG funds as a step in the right direction for tackling greenwashing, Lewis noted that, following this decline, it is possible that some funds may be restructured or relaunched to comply with the emergent definitions.
Lewis added that there remains a growing economic motivation for banks to consider climate change-related factors.
“A lot of these big banks aren’t doing it because they’re motivated by this charitable desire to save the planet, they’re doing it because of economic fundamentals. It just makes sense,” he said.