With sustainable investment funds accounting for as much as 1 in 4 institutional dollars under management, it raises the question of how much is real progress vs. mere marketing.
The growth has been nothing short of astounding. Assets managed under ESG principles reached $14.6 trillion in 2019, a 168.1% increase from $5.4 trillion in 2016, when Pensions & Investments began collecting the data, and up 27.3% from the end of 2018. The question is, how much of that growth is truly new?
As much as 86% of the $1.2 trillion in sustainable mutual funds and ETFs added in 2019 came from rebranding of fund names, according to an analysis by Michael Cosack, a principal with sustainable investing consultant ImpactWise LLC, and Henry Shilling, director of research for Sustainable Research and Analysis LLC, both in New York.
"It's clear that there is lots of product coming into the marketplace. There are now over 1,000 funds pursuing one form of sustainable investment strategies, and that in our view has contributed to a lot of confusion. We are not suggesting that greenwashing is taking place, but this could lead to disappointment and could lead to greenwashing," Mr. Cosack said.
Greenwashing is the practice of making unsubstantiated or misleading claims about a product or strategy's environmental, social or governance benefit.
"There can't just be a name change. It should be coupled with a classification scheme. The industry is in the best position (to do that), but if the industry fails to come together then it's going to have be punted over to the regulators," Mr. Cosack said.